- Homewares retailer reiterates full year guidance
- First half sales up 5%
- Warns consumer outlook remains ‘unpredictable’
Homewares market leader Dunelm (DNLM) has reported a 17% drop in first half pre-tax profit to £117.4 million and warned the consumer outlook ‘remains unpredictable’ due to high inflation and the cost-of-living crisis.
Yet shares in the cushions, quilts and kitchenware purveyor rose 1.5% to £11.87 after it reiterated full year guidance and treated investors to a 40p special dividend on top of a 7.1% hike in the ordinary interim payout to 15p.
SECURNG FURTHER GAINS
Total sales ticked up 5% to £835 million in the half to 31 December 2022, more than 40% above 2020’s comparable pre-pandemic half, as Dunelm helped cost-conscious customers manage their household budgets.
The FTSE 250 retailer made further market share gains in homewares and furniture and ‘significantly’ expanded its product range online.
Unfortunately, first half profits fell as margins were squeezed by cost inflation and the Leicester-based retailer lapped a prior year period in which earnings were lifted by strong post-pandemic demand in the prior year.
PROFIT GUIDANCE REITERATED
While customers have been ‘resilient to date’, Dunelm warned the consumer outlook ‘remains unpredictable’.
Nevertheless, the company is sticking with full year guidance for pre-tax profits in line with the £176 million average of analysts’ estimates, which implies a 17.5% reduction from last year’s £213 million.
WHAT DID THE CEO SAY?
CEO Nick Wilkinson commented: ‘We are all learning to live in a new, complex and rapidly evolving economic reality. Recognising this, our focus has been on ensuring that we continue to offer outstanding value to our savvy customers through a proposition which is committed to quality, at the right price, across an expanding range of relevant products. We believe that this is why we have continued to grow our sales, customer numbers and market share.
‘In this environment, agility, creativity and innovation are more important than ever and we have endeavoured to make every pound count, both for ourselves and for our customers, helping to mitigate the impact of inflation.’
EXPERT VIEWS
Russell Pointon, director of consumer at Edison, said Dunelm has demonstrated ‘remarkable resilience’ despite the headwinds of rising living costs and has ‘recovered exceptionally strongly from the effects of the Covid pandemic through range extensions that have led to good market share gains’.
Pointon added: ‘The company’s product assortment has proven to be a winning formula as customers navigate through the cost-of-living crisis and the chilly weather, with the Winter Warm range being particularly appealing amidst rising energy bills.
‘However, the escalating input costs continue to pose a challenge. While the group’s value-driven offerings remain popular, it is not impervious to the tough retail landscape as consumers are keeping a close eye on their spending.’
AJ Bell investment director Russ Mould remarked that Dunelm’s first half profit didn’t cause undue alarm as ‘the impact of inflationary pressures was hardly an unknown for investors and the company was competing with strong post-Covid trading as well as being affected by the timing of its big sale.
‘More importantly the company is sticking with its full-year forecast and delivered meaningful sales growth during the period - suggesting it is picking up market share from struggling rivals.’
Mould said Dunelm’s products are ‘affordable but not so low quality as to prove a false economy. In recent years it has sorted out the digital side of its business - just in the nick of time before the pandemic hit as it turned out.
‘It has also got the basics of retail right. Things like making sure it has the right stock in the right place and carefully managing its cash. Undoubtedly the consumer backdrop is challenging, but Dunelm’s strengths should help cushion any cost-of-living blow.’
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 (Tom Sieber) own shares in AJ Bell.
