ii view: Dunelm down but still winning market share

Shares in this specialist retailer currently sit on an estimated future dividend yield of around 4.5%. Buy, sell, or hold?

Third-quarter trading update to 26 March

• Total sales up 40% from two years ago to £399 million

Guidance: 

• Continues to expect full-year profit to be in line with City forecasts of around £207 million
• Expects full-year gross profit margin to be broadly similar to last year, up from a previous slight decline

ii round-up:

Homewares retailer Dunelm Group (LSE:DNLM) sells around 50,000 product lines. 

Its items for sale include bedding, curtains, cushions, quilts, pillows, furniture and lighting. 

Most of its 176 stores are out-of-town and are located to reach over 65% of the UK population within a 20-minute drive. 

For a round-up of this latest trading up, please click here. 

ii view:

Dunelm was founded in 1979 as a market stall business, selling ready-made curtains. Headquartered in Leicester, today it employs over 11,000 people and became a multi-channel retailer in 2005, launching its own website. Digital sales in this latest quarter accounted for 35% of overall sales, up from 33% in the first half. 

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For investors, accompanying management outlook comments regarding the uncertain macro environment and increasing pressures on the consumer cannot be ignored. Additional stockholding costs to navigate supply chain issues are being faced, while business costs in general are rising as inflation remains elevated. A move into net debt from a prior position of net cash following the previous payment of a special dividend is also noteworthy. 

But Dunelm's ongoing market share gains both for homeware and furniture is helping to drive sales. A strong focus on costs persists, as does expansion of its store chain. Digital sales are now well established, while operational improvements remain ongoing, with the latest the opening of a new furniture fulfilment hub in Daventry.

After a strong share price performance over the past three years, investors seemed to use Russia's invasion of Ukraine as an excuse to take profits. They also worry about inflation and its impact on the retail sector. However, with sales growth ongoing and Dunelm shares now sat on an estimated future dividend yield of around 4.5%, long-term fans of this specialist retailer will likely remain patient.

Positives: 

• Growing digital sales
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• Rising raw material and freight costs

The average rating of stock market analysts:

Buy