Hays crashes while Dunelm rockets higher

First-quarter results from these two well-known brands couldn't have been received any differently in the City. Lee Wild, head of equity strategy at interactive investor, explains why it happened.

Dunelm

It's only a month since Dunelm told us that the business had traded in line with expectations during the first-quarter, so there are no surprises here. Total like-for-like revenue, which includes stores and the internet grew by 4.2% in the 13 weeks to 29 September. Sales grew by less than this time last year, but beating that exceptional 9.3% rise in 2017 was never on the cards.

Trends are fairly predictable at Dunelm. The stores increased sales by 1.3%, although they fell by 0.4% if you strip out tablet-based selling in-store for home delivery. That doesn’t look great, but online sales are growing strongly, up by one-third this time.

Turning off the Worldstores and Kiddicare websites and shifting 20,000 lines to Dunelm.com has had the required effect on margins. Exiting lower margin sales there gave group margin a 130 basis-point boost this time. Crucially, currency benefits and better sourcing improved return on sales by 50 basis points at the continuing business. 

Overall, the numbers are fine and, crucially, there were no nasties here. A valuation of 12 times earnings estimates is undemanding and supported by a generous dividend yield of 5%. Further progress will, of course, depend on how confident consumers feel as the Brexit deadline approaches.

Source: TradingView Past performance is not a guide to future performance

Hays

Hays is saying all the right things, and its first quarter results are solid enough, but the macro picture is fragile and recruiters will be in the firing line when the tide turns.

A 7% increase in net fees, or 9% like-for-like, is the 22nd consecutive quarter of year-on-year growth. It's clearly significant that Germany, Hays' largest market, is thriving and thrashing even last year's strong numbers. Growth of 29% in China and 27% in the US is impressive, and there's more to go for there.

Brexit is causing problems for hirers in the UK, and this is Hays' weakest link currently. Employers are cautious, which means only modest growth here.

Hays shares are down 15% in the past month to a 2018 low, and 175p is a big level of technical support. There's nothing in these results to cause deep concern, but Hays will struggle to avoid turbulence in the wider market.

Source: TradingView Past performance is not a guide to future performance