Retailer Dunelm’s (DNLM) value-for-money credentials are helping it cope with the impact of the cost-of-living squeeze on home-loving customers judging by its latest update.

Shares in the UK homewares leader rose 3.6% to £11.53 after the bedding, curtains and kitchenware purveyor reported strong fourth quarter sales.

And with margins holding up well thanks to a tight grip on costs, the retailer now expects pre-tax profits for the year to June 2023 will be ‘slightly ahead’ of the £188 million called for by consensus.

STRONG SUMMER SALE

Sales grew 6% to £381 million in the quarter ended 1 July 2023, taking Dunelm’s full year sales up 6% year-on-year to £1.64 billion, ahead of the 5.1% growth the market was forecasting, despite a difficult consumer backdrop of stubbornly high UK inflation and rising interest rates.

Leicester-headquartered Dunelm saw ‘particularly strong volume growth’ in the final quarter, helped by price cuts on over 1,000 product lines.

Whereas cooler weather at the start of the period drove sales of bedding and rugs, garden furniture and decorations performed well in the warmer weather seen towards the end of the quarter.

A BIGGER, BETTER BUSINESS

The FTSE 250 retailer’s total sales are nearly 50% higher than pre-Covid full year 2019, demonstrating that Dunelm is now a bigger and better business with a significantly improved customer proposition and with more shoppers engaging with its brand.

Digital sales represented almost 40% of sales in the fourth quarter, showcasing CEO Nick Wilkinson’s success with digitalisation efforts.

‘The breadth and relevance of our product offer has continued to resonate with our home-loving customers over the last quarter of the year,’ commented Wilkinson.

‘This has been reflected in our strong financial performance despite the challenging broader consumer backdrop.’

There was also relief as Dunelm said it is ‘pleased with trading so far in the new financial year’. And whilst the consumer outlook ‘remains uncertain’, Dunelm will ‘keep focusing on delivering outstanding value and relevance to our customers’.

EXPERT VIEWS

Shore Capital explained that Dunelm’s performance in the face of a challenging macro environment is ‘not unexpected. Next’s (NXT) unscheduled trading update highlighted strong momentum driven by factors such as higher real wages and favourable weather patterns, which have contributed to a more resilient consumer outlook. Within the home sector, Dunelm consistently outperforms the market, making it an attractive investment opportunity.’

Unscheduled trading update

Danni Hewson, head of financial analysis at AJ Bell, commented: ‘Cushions-to-picture frames seller Dunelm has been doing okay, but management is right to flag ongoing uncertainty with regards to the consumer outlook.’

Hewson added: ‘Its focus on good value for money has paid off in the cost-of-living crisis but no company can be complacent when inflation remains significantly above the Bank of England’s 2% target and the sharp rise in interest rates presents ongoing challenges to the consumer.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (James Crux) and the editor of the article (Steven Frazer) own shares in AJ Bell.

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