ii view: Dunelm hopeful of restarting dividends

With plenty of cash and plans to expand store numbers, should investors bag this retailer?

Full-year results to 27 June  

• Revenue down 4% to £1.06 billion
• Pre-tax profit down 13.3% to £109.1 million
• Net cash of £45.4 million, up from debt of £25.3 million
• No final dividend payment

Guidance: 

• Subject to Covid-19, hopes to pay the coming half-year dividend
• Offering no current year guidance/forecasts

Chief executive Nick Wilkinson said:

"We made good progress before the onset of Covid-19, building our digital capabilities, extending our product choice and value, and broadening and deepening our customer base.

 "These unprecedented times have confirmed the strength of the Dunelm business model, with our integrated online and out-of-town stores proposition, broad product range, long-term supplier relationships, strong cash generation and operational grip. 

"Growth in the first two months of the new financial year has been significantly ahead of our expectations, reflecting both pent up demand following the store closure period and a resilient homewares market."

ii round-up:

Home furnishing retailer Dunelm (LSE:DNLM) today reported full-year results which offered no surprises from its mid-July fourth-quarter trading up.

As expected, store closures under the pandemic caused a 13.3% drop in pre-tax profits to £109.1 million, although trading in the new financial year has proved significantly ahead of management hopes. Subject to the pandemic, it also hopes to resume dividend payments come the half year results in 2021. 

Dunelm shares rose marginally in UK trading having risen by around a quarter in the year-to-date. Shares of DIY retailer Kingfisher (LSE:KGF) are up by a similar amount, while shares of kitchens retailer Howden Joinery (LSE:HWDN) are down by nearly a fifth. 

Dunelm sales in July, given pent up demand from lockdown closures, rose by 59% year-over-year. Sales in August rose by 24%. Digital sales in July and August accounted for just under a third of the total. Online home delivery sales spiked by 130% compared to the previous year.

In terms of strategy, management continues to target an increase in its store portfolio from the current 173 outlets to approximately 200, with three to five superstore openings per year.

Although Dunelm is offering no financial estimates for the year ahead, analyst consensus pre-tax profit figure of £128 million is an improvement on the £109.1 million just reported.   

ii view:

Dunelm was founded in 1979 as a market stall business, selling ready-made curtains. Today it employs around 10,000 staff across a store portfolio of more than 170 outlets. In 2005, it became a multi-channel retailer, launching its own website. It sells approximately 50,000 product lines and estimates the combined UK homewares and furniture markets to be worth in the region of £26 billion. Most of its stores are out-of-town and are located to reach over 65% of the UK population within a 20-minute drive. 

For investors, news of solid sales since the Covid-19 reopening of stores is clearly favourable. Cash held, a spike in the use of its website and a hoped-for return to the payment of dividends all add to the positives. But with the share price having already doubled since late March and the estimated forward price/earnings (PE) ratio coming in above both the three- and 10-year averages, there clearly remains room for caution. 

Positives: 

• Net cash held
• Growing online sales

Negatives:

• Offering no current year guidance
• Dividend payments halted

The average rating of stock market analysts:

Hold