ii view: Dunelm pushes growth on multiple fronts

Fourth-quarter trading update to 28 June

• Revenue up 4% to £415 million

Guidance:

• Continues to expect full-year pre-tax profit of between £207 million to £215 million, potentially up from last year’s £205 million

Chief executive Nick Wilkinson said: “We’ve had a good final quarter with continued growth and further strategic progress. Customers responded well to offers across our categories in our Summer Sale, and we saw strong demand for our Summer Living ranges, particularly as customers focused on their outdoor spaces during the warmer weather.

“Amid muted consumer confidence, we are not standing still waiting for a recovery. We are instead focused on delivering relevance to our customers, to help build greater trust in the quality, value and breadth of our offer, harnessing our unique strengths as a multi-category specialist. As we progress our ambitions to gain further market share, we remain confident in our ability to unlock our full potential as the Home of Homes.”

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ii round-up:

Homewares retailer Dunelm Group (LSE:DNLM) sells around 95,000 products. 

Items and services sold include bedding, furniture, dining ware, lighting, paints and services such as made-to-measure curtains. 

The FTSE 250 company operates 202 stores across the UK and Ireland with 150 outlets including a Pausa coffee shop. 

For a round-up of this latest trading update announced on 17 July, please click here. 

ii view:

Started as a curtain stall in Leicester market in 1979, Dunelm came to the UK stock market in 2006. Today it employs around 12,000 people. Rivals include Next (LSE:NXT), Marks & Spencer Group (LSE:MKS) and even B&Q owner Kingfisher (LSE:KGF). Alongside its store portfolio, Dunelm’s website offers both home delivery and Click & Collect options. 

For investors, consumer outlook uncertainty includes the impact of US trade tariffs globally as well as potential tax rises given challenged UK government finances. Staff costs have risen under increased UK employer taxes. The pending change of the chief executive offers some uncertainty and comes against a robust track record, while a forecast price/earnings (PE) ratio in line with the three-year average may suggest the shares are not obviously cheap.

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More favourably, store numbers are growing with the variety of stores including six recent superstore openings and its first in inner London at Westfield White City. The proportion of digital sales is up to 40% during this latest quarter from 37% in late 2023. Artificial intelligence or AI is now being used to improve its website offering, while new CEO Clodagh Moriarty, an experienced Sainsbury (J) (LSE:SBRY) director, will likely look to inject new vigour into the retailer’s strategy come October onwards. 

For now, and despite ongoing risks, both an estimated future dividend yield of close to 4% and a consensus analyst estimate of fair value sat at over £12.50 per share offer grounds for continued optimism. 

Positives: 

• Growing sales
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• Heighten costs

The average rating of stock market analysts:

Buy