ii view: jury's out on Dunelm’s new growth strategy

Full-year results to 27 June and strategy update

• Revenues up 3.1% to £1.83 billion
• Pre-tax profit flat at £211 million
• Final dividend of 28p per share
• Total ordinary dividend for the year up 2.2% to 45.5p per share
• Special dividend for the year of 25p per share, down from 35p per share last year
• Net debt of £94.6 million, down from £102 million

Guidance:

• Flagged significantly softer trading in first six weeks of the new 2027 financial year due to hot weather
• Expects little change in adjusted pre-tax profits for the year ahead

Chief executive Clo Moriarty said:

"Dunelm is a special business. We have a strong track record, a market-leading position and, importantly, a significant opportunity ahead of us. We believe we can capture that opportunity through a customer-led, self-funded plan that builds on the many strengths that have made us successful for nearly fifty years.

"We want to reach new customers and deepen our connection with existing ones, earning more loyalty and becoming the specialist they turn to for every mission in the home, whether they are refreshing a room, solving a practical problem, or creating a space they love.

"By making it easier and more inspiring to shop with us, and investing in the capabilities we need for the future, we believe we can accelerate our growth and strengthen our market leadership.

"We are not changing the fundamentals of Dunelm - we are building on them with greater ambition. By winning more of our customers' hearts and homes, we can create a bigger, better and bolder Dunelm for all of our stakeholders."

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ii round-up:

Homewares retailer Dunelm Group (LSE:DNLM) sells around 100,000 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 204 stores across the UK and Ireland and employs around 12,000 people.

For a round-up of these latest results and strategy update announced on 8 September, please click here.

ii view:

Started as a curtain stall in Leicester market in 1979, Dunelm came to the UK stock market in 2006. Alongside its store portfolio, the group’s website offers both home delivery and Click & Collect options. Digital revenue at 42% of group sales during this latest period is up from 37% in late 2023. Rivals include Next (LSE:NXT), Marks & Spencer Group (LSE:MKS), B&M European Value Retail (LSE:BME) and even online retailer Wayfair Inc Class A (NYSE:W).

For investors, the weather can impact sales, with soft sales at the beginning of the new financial year to 2027 hurt by the heatwave. High energy prices, inflation and probability of higher interest rates continues to cast a shadow over consumer spending. Group investment is expected to about double per annum under its new three-year strategic plan, while the group lacks the geographical diversity of rival Next. Costly expansion also reduces the likelihood of special dividends in future. 

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More favourably, spending for the new three-year growth plan, aimed at more stores, store refurbs, technology and supply chain investments, will be funded largely via the removal of £100 million of costs by 2029. Previous investment in technology has already expanded digital sales, with AI now used to improve its website offering. Potential to expand overseas exists, potentially via its website offering first, while a forecast price/earnings (PE) ratio of 10 times for the full-year 2027 is the lowest since 2019, suggesting the shares are not expensive.

In all, while the combination of a growth plan, low valuation and consensus analyst fair value estimate above £10 per share offer appeal, the risk of reduced dividends, headwinds in the retail sector and doubts about growth may keep other investors on the sidelines for now.

Positives:

• Growing sales
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• Heighten costs

The average rating of stock market analysts:

Buy