ii view: Dunelm sales buoyed by energy-saving product demand

The retailer is growing sales and store numbers, and upping its dividend payment. We assess prospects. 

First-half results to 31 December

• Revenue up 5% to £835 million
• Pre-tax profit down 17% to £117 million
• Interim ordinary dividend up 7% to 15p per share
• Special dividend of 40p per share

Chief executive Nick Wilkinson said: “We are all learning to live in a new, complex and rapidly evolving economic reality. Recognising this, our focus has been on ensuring that we continue to offer outstanding value to our savvy customers through a proposition which is committed to quality, at the right price, across an expanding range of relevant products.”

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ii round-up:

Homewares retailer Dunelm Group (LSE:DNLM) today detailed first-half results in line with its prior forecasts as it benefited from demand for items such as thermal curtains given consumers desire to save on energy bills.

First-half sales to the end of December rose 5% to £835 million, with sales prior to the start of the pandemic climbing 43%.

Shares for the FTSE 250 retailer were little changed in early UK trading having fallen by close to a tenth over the last year, similar to the mid-cap index itself. Shares for clothing and homewares retailer Next (LSE:NXT) are down by nearer to 4% over that time, while shares for DIY retailer Kingfisher (LSE:KGF) have fallen by just over a tenth. 

Pre-tax profit for Dunelm retreated 17% year-over-year, impacted by sale timings, strong post-pandemic demand a year ago, and inflationary impacts, but matching management’s prior forecasts. 

Market share gains in both homeware and furniture were made with its profit forecast for the full-year left unchanged at around £178 million. That’s down from a record £209 million last year. 

A 7% increase in the ordinary interim dividend to 15p per share came with a special dividend of 40p per share.

A third-quarter trading update is scheduled for 20 April. 

ii view:

Dunelm was founded in 1979 as a market stall business, selling ready-made curtains. Headquartered in Leicester, today it sells around 60,000 product lines including bedding, curtains, cushions, quilts and furniture. It employs around 11,000 people with its product lines including specialist own brands and labels such as Dorma and Fogarty. 

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For investors, high inflation, rising interest rates and a cost-of-living crisis for consumers provide a tough backdrop. Costs in general for businesses remain elevated, while accompanying management outlook comments understandably offer some caution. 

On the upside, its value offering appeals firmly to cost-pressured consumers. A target of 200 stores from the current 179 outlets is held, digital sales are well established representing just over a third of overall sales, while room to grow its market share in furniture persists.

On balance, and given a forecast dividend yield of around 4%, income investors at least are likely to stay patient. 

Positives: 

• Growing sales
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• Elevated business costs

The average rating of stock market analysts:

Strong hold