- Growth slows in Q2
- Profits seen ‘within the range’ of expectations
- Digital growing as share of sales
Homewares retailer Dunelm (DNLM) said it delivered ‘solid’ sales growth in the first half to 28 December 2024, with sofas, dining chairs and coffee tables selling particularly well and digital sales penetration buoyed by strong Click and Collect sales.
However, shares in the cushions-to-curtains seller softened 4% to 987p on the revelation sales growth slowed in the second quarter in ‘challenging’ market conditions.
Investors were also rattled by management’s rather vague language around the outlook.
Against a backdrop of rising costs, Dunelm still expects pre-tax profit for the year to June 2025 to be ‘within the range’ of the £207 million to £217 consensus is calling for, which leaves wiggle room for earnings to come in at the lower end of guidance.
SALES GROWTH SLOWS
The FTSE 250 furnishings firm’s sales grew by a modest 2.4% to £894 million in the first half, while growth slowed sequentially, from 3.5% in the first quarter to 1.6% in the second quarter including Christmas, in a market management described as ‘volatile’.
Tight cost control drove a 10 basis point year-on-year improvement in first-half gross margin, which Dunelm now expects will be in the upper half of its 51% to 52% guided range for the year.
GRINDING OUT GAINS
‘We've made significant strategic progress across multiple initiatives which are helping us to improve our attractive, specialist offer and continue to gain market share,’ insisted CEO Nick Wilkinson.
‘We have taken our first steps outside the UK with the acquisition of 13 stores in Ireland, opened our first inner London store in Westfield, and made further improvements to our online customer experience which is contributing to continued strong digital growth. As we move into the second half of full year 2025, we have successfully launched our Winter Sale which is being well received by customers seeking amazing value across a wide choice of relevant products for the colder months.’
THE EXPERTS WEIGH IN
Following the disappointing update, Panmure Liberum downgraded its recommendation from ‘hold’ to ‘sell’, observing that second quarter sales were ‘a touch soft at 1.6% and we worry that having defied gravity - enjoying multi-year supernormal sales growth – Dunelm’s run may be running out of steam. Still, the market backdrop has not been helpful, and it is comforting that Dunelm has continued to gain share.’
Jefferies commented: ‘A softer update from Dunelm this morning, perhaps not too much of a surprise given the weaker tone from UK retailers in the last week. While reassuring that pre-tax profit expectations remains within the range, this does leave scope for marginal downside to consensus.’
Russ Mould, investment director at AJ Bell, said the fact Dunelm’s core business is only recording marginal gains suggests the retailer faces an uphill battle this year.
‘Pressure on costs from Budget-related initiatives and a fragile consumer backdrop means the retailer will have to work extra hard to stay on track,’ explained Mould.
‘The fact it has maintained full-year profit guidance comes across as slightly ambitious. There is a real risk that Dunelm’s trading deteriorates in the coming months because of the market backdrop rather than any fault of its own. It might have been better to take an ultra-cautious view of the outlook than hope for the best and subsequently disappoint the market.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
