Dunelm's 20% rally rewards faithful shareholders
One of the FTSE 350’s top stocks in 2019, today’s share surge is proof you shouldn’t write off Dunelm.
5th December 2019 12:39
by Graeme Evans from interactive investor
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One of the FTSE 350’s top stocks in 2019, today’s share surge is proof you shouldn’t write off Dunelm.
Investors who stuck with Dunelm Group (LSE:DNLM) after October's trading blip were handsomely rewarded today when a surprise update helped push the shares close to record territory.
The 20% surge to 998.5p reflected stronger-than-expected margins in the run-up to Christmas, plus relief that a migration to a new website had been executed without any disruption.
Dunelm adds that profits for the year to June will be ahead of market expectations, although it is wary about the possibility of weaker consumer demand in the wake of the General Election.
Analysts at Peel Hunt, who today upgraded their Dunelm recommendation from “add” to “buy”, believe there's potential for further upside in the event of a stable trading backdrop. For the timebeing, however, they have retained a price target at 1,000p.
Source: TradingView Past performance is not a guide to future performance
FTSE 250-listed Dunelm shares have still to reach this landmark, despite the homewares retailer looking set to do so in June and April, as well as back in 2016. They are up 82% so far in 2019 following a string of profit upgrades, although this run of trading success hit a bump in the road in October after warm weather helped to keep shoppers away from stores.
Peel Hunt said today that Dunelm's continued outperformance reflected an improving product offer and stronger brand awareness, leading to active customer growth in stores and online.
They added:
“With the new web platform, Dunelm is well placed to materially step-up its multi-channel capabilities, further driving spend per customer and new customer growth.”.
Dunelm's remarkable rise to the top of the UK's £13 billion homewares sector was highlighted by Retail Economics recently when the consultancy said the chain accounted for a market-leading 11.1% of sales, beating the likes of John Lewis (LSE:JLH), Ikea and Next (LSE:NXT).
Where Marks & Spencer (LSE:MKS), Debenhams (LSE:DEB) or House of Fraser might have once featured heavily, the top 10 is now made up of Amazon (NASDAQ:AMZN), Argos, Wilko and the supermarkets Sainsbury's (LSE:SBRY), Tesco (LSE:TSCO) and Asda.
The fact that M&S sits alongside Dunelm in the FTSE 250 index is all the more remarkable because Dunelm was started in 1979 by founders Bill and Jean Adderley selling second-hand M&S curtains from a market stall in Leicester.
Within a month they had made a 600% profit, leading to the first bricks and mortar store in 1984 and more than 170 superstores by today. A new outlet is due to open next week in Bristol.
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Dunelm joined the stock market in 2006 and is worth in excess of £1.7 billion, compared with £3.7 billion for M&S. Based on last night's prices and forecasts, Dunelm trades on 15.8 times 2020 calendar earnings with a 3.6% dividend yield, against 14.7x for the rest of the retail sector.
Analysts at Stifel were sufficiently encouraged by today's update to up their price target to 1,010p from 960p, while also nudging up their 2020 profits forecast by 5% to £138 million.
They added: “The group is just beginning to reap the rewards of digital investment seen over the past few years.
“Developing multichannel capability and brand reach, under a settled management team, should allow the group to significantly extend its market leadership into the longer term.”
Dunelm's success is another reminder to investors not to overlook retail stocks in the face of ongoing consumer uncertainty. Earlier this week, we reported on a further surge for Boohoo shares on the back of record Black Friday trading.
AIM-listed Boohoo (LSE:BOO) is up 90% so far in 2019, although even that performance is surpassed by JD Sports Fashion (LSE:JD.) following a jump of 118% in the FTSE 100 index.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.