- First quarter sales dip by 8%
- Resilient homewares retailer sticks with full year guidance
- Appears better placed than rivals for tough times ahead
Homewares retailer Dunelm (DNLM) reported a year-on-year drop in first quarter sales with the cost-of-living crisis and inflationary pressures crimping consumer spend.
The news sent shares in the value-for-money cushions, curtains and kitchenware seller 1.3% lower to 795p to leave them down more than 40% year-to-date.
Yet management described trading as ‘robust and the resilient retailer maintained its outlook for full year 2023.
The mid-point of the analysts’ consensus is for pre-tax profits of £178 million, implying a 15% drop from last year’s £209 million, though a wide consensus range of £130 million to £193 million demonstrates how uncertain the outlook for retailers is at present.
For the 13 weeks ended 1 October 2022, Dunelm’s total sales softened by 8% to £357 million as the bedding and furniture purveyor lapped a demanding prior year comparative period boosted by pent-up demand and its rescheduled summer sale.
However, total revenue was an impressive 36% above pre-pandemic levels, Dunelm having significantly increased market share as people spent more on making their homes cosy over the course of the Covid crisis.
Dunelm said its performance demonstrates ‘the strength of our business model against a challenging external backdrop, and we continue to be sharply focused on offering outstanding value to our customers’.
The Leicester-based retailer said digital sales made up a third of total sales in the quarter, in line with last year, and insisted it is seeing a ‘very good response’ from shoppers to ‘winter warm’ products such as blankets, rugs and curtains.
Despite inflationary pressures and currency swings, Dunelm expressed confidence in generating a full year gross margin of around 50%, citing its focus on maintaining ‘tight operational grip’, though the retailer warned the macroeconomic environment remains ‘challenging’.
WHAT IS THE CEO SAYING?
Nick Wilkinson, Dunelm’s digitally-savvy CEO, said the retailer has emerged from the last two years as ‘a bigger, better business, with total sales up 36% against the same period pre-Covid. As we enter what will clearly be a challenging winter for consumers, our absolute focus remains on making every pound count for everyone, through a tight grip on operations.’
Wilkinson stressed that his charge will ‘continue to offer outstanding value at all price points, so our customers can make their own choices around adapting to the economic backdrop. This focus on value has seen Dunelm successfully navigate previous periods of economic uncertainty.’
WILL THERE BE A SOFT LANDING FOR DUNELM?
Although Dunelm has done an excellent job of improving its online retail operation and getting the right mix of quality and value to appeal to shoppers over recent years, the retail sector outlook is bleak as households struggle with escalating mortgage and energy costs.
And as Russ Mould, investment director at AJ Bell, pointed out, ‘the pandemic trend of looking to spruce up a living space in which people had been spending an inordinate amount of time also seems to be well and truly over.
‘Dunelm, like lots of retailers just now, faces a difficult challenge in terms of how far it is prepared to cut prices to keep the tills ringing. Go too far and margins will be squeezed beyond breaking point, and it might be difficult to push prices back up when the economic backdrop improves.
‘One crumb of comfort for Dunelm is that it is doubtless better placed than some of its rivals and could come out the other side of the current turmoil with an improved market share.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) owns shares in AJ Bell.
