Interactive Investor

ii view: Dunelm details special dividend after profit increase

Shares for this value focused retailer are up by more than a third over the last five years. We assess prospects.

14th February 2024 15:37

Keith Bowman from interactive investor

First-half results to 30 December

  • Revenue up 4.5% to £873 million
  • Pre-tax profit up 5% to £123 million
  • Interim dividend up 7% to 16p per share
  • Special dividend of 35p per share
  • Group net cash of £6.2 million, down from £18.2 million

Chief executive Nick Wilkinson said: 

"In the past six months we have kept our customers front of mind, ensuring our broad offer has value at its core whilst also expanding our ranges, introducing new styles, and improving the experience across our store and digital channels.

"As we move towards Spring and customers look to freshen up their homes, our specialist proposition continues to resonate strongly and, in a dynamic retail environment, we are relentlessly focused on evolving and investing in our business to ensure we remain relevant to further increase our broad appeal. We have never been more excited about our future as we build trust in our offer and identity as the Home of Homes."

ii round-up:

Dunelm Group (LSE:DNLM) today announced rising sales and profits with the homewares retailer declaring a special dividend of 35p per share alongside a 7% improvement in the ordinary interim payment to 16p per share. 

A 4.5% increase in first half sales to £873 million pushed pre-tax profit up 5% to £123 million, matching City expectations, with management maintaining its hopes for an improvement in annual pre-tax profit to around £202 million from last year’s £193 million.   

Shares for the FTSE 250 company retreated marginally in UK trading having come into this latest news up by almost a fifth during 2023. That’s similar to DIY retailer and B&Q brand owner Kingfisher (LSE:KGF) and comfortably ahead of a 5.3% gain for the 250 index itself last year. 

Dunelm sells items ranging from curtains and bedding to furniture and paints. Four new store openings during the period took its total to 183 with digital related sales climbing to 36% of revenues from 34% a year-ago. 

Management flagged gains in market share for both homeware and furniture, whilst active customer numbers rose 4.2% according to its own estimates. 

Both the special and ordinary dividend payments are to be paid to eligible shareholders on 9 April. A third-quarter trading update is scheduled for 18 April. 

ii view:

Started in 1979 and coming to the stock market in October 2006, Dunelm today sells around 70,000 products. Headquartered in Leicester and employing around 11,000 people, it aims to grow its UK store portfolio to around 200 locations. Product lines include specialist own brands and labels such as Dorma and Fogarty with around 150 stores now offering a Pausa coffee shop.  

For investors, elevated borrowing costs continue to leave consumer spending pressured with accompanying management comments flagging a more difficult trading environment. Supply chain disruption and increased costs from Red Sea challenges warrants consideration. As do heightened costs more broadly such as wages, while a price to net asset value ratio above the three-year average may suggest the shares are not obviously cheap.

On the upside, its value offering continues to appeal to cost pressured consumers with its range of products now stretching into furniture and DIY. A high focus on cost control persists, digital related sales are growing, while new stores continue to be opened.

On balance, and while some caution looks sensible, the return of more than £1 billion to shareholders over the last ten years in ordinary and special dividends and an estimated future dividend yield of close to 4% should prove sufficient to keep income orientated investors staying onboard. 

Positives: 

  • Growing sales
  • Attractive dividend yield (not guaranteed)

Negatives:

  • Uncertain economic outlook
  • Elevated business costs

The average rating of stock market analysts:

Strong hold

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