Shares in homewares retailer Dunelm (DNLM) improved 1.9% to £12.88 after the bedding, curtains and kitchenware retailer reported record first half profits amid continued outperformance of the homewares and furniture markets.
The Leicester-headquartered company assured investors trading in the second half to date, including its Winter Sale, ‘continued to be encouraging’, leaving Dunelm on course to deliver full year pre-tax profit in line with the recently upgraded consensus estimate of £206 million.
The retailer raised its interim dividend to 14p, up from 12p a year earlier, and in a show of confidence declared a further special dividend of 37p.
RECORD FIRST HALF PROFITS
Dunelm is reaping the benefits of having an incredibly well-run business and the tailwind that Covid has brought as consumers spend more money doing up their homes.
For the half ended 25 December, pre-tax profit rose 25.3% to a record £140.8 million on total sales up 10.6% to £795.6 million, with Dunelm attributing its robust margins to ‘a particularly strong stores performance and leverage of fixed costs’.
Gross margin expanded by 80 basis points to 52.8% due to higher full price sell through of seasonal lines, with the prior year margin impacted by store lockdowns.
A BIGGER, BETTER BUSINESS
Chief executive Nick Wilkinson commented: ‘Together we have navigated another period filled with significant and evolving external challenges and delivered a very strong performance in the first half, with continued growth in customer numbers, further market share gains, record sales and particularly strong profitability.
‘When we announced our interim results in 2020, we were weeks away from the world being turned upside down. Two years later, we are moving forwards as a bigger, better business, with more capability, more resilience, more ambition, and delivering accelerated growth.’
Edison consumer sector analyst Russell Pointon said the strong results show Dunelm has ‘navigated well through the stormy seas caused by Omicron, inflationary pressures and supply chain issues’, and highlighted the increase of 6.3% over 12 months in active customers, reaching 13 million.
Digital sales represented 33% of total sales in the half, increasing by 120.7% in absolute terms since the first half of full year 2020. ‘Online shopping looks set to maintain a long-term hold over consumer behaviour,’ said Pointon, ‘and Dunelm emphasised that it will continue to invest in the development of both its digital customer experience and technological capabilities. The recent opening of the dedicated ecommerce operation in Stoke signals the group’s intention to optimise digital fulfilment and drive its future growth ambitions.’
THE EXPERT’S VIEW
Commenting on the figures, AJ Bell investment director Russ Mould explained that Dunelm ‘wisely invested in improving its digital channels a few years ago and so it was well positioned as the pandemic increased the shift towards buying online.
‘It has also recognised the importance of superior customer service with a wise decision to invest in staff training and have representatives on the shop floor with iPads offering advice and help to customers.’
The outlook for discretionary consumer spending is uncertain, given the headwinds from soaring energy prices, higher National Insurance deductions and a generally inflationary environment.
‘At first glance, one might think Dunelm is vulnerable as many of its goods are non-essential,’ continued Mould.
‘However, what we might see is a shift in the type of products being bought. There is always going to be some demand for towels, lights, cooking equipment and bedding, all of which is sold by Dunelm. The retailer should also benefit from having bulked up its value proposition, with more entry-price products and promotional deals.
‘A greater volume of lower-priced items might not necessarily be good for its profit margins, but there seems a good chance that its tills will continue to ring during what could be a difficult time for many other retailers.’
