We identified the scope for growth at home retailer Dunelm (DNLM) last November (Buy, 832p, 28 Nov 2013) , and the group's interim results did not disappoint. Despite ongoing challenges in the retail sector - consumer spending remains under pressure and weather patterns have been unusual - the company has continued to expand its business by means of store launches and a more user-friendly website.
The opening of six new stores, including the relocation of an existing superstore, accounted for the period's revenue growth. Stripping out the benefit of the extra space, like-for-like revenues actually fell 0.9 per cent, which the company blamed on low footfall during last summer's heat wave.
The expansion drive pushed up the group's operating costs by 8.1 per cent to £118m. Yet investment in the business has started to bear fruit: its first television advertising campaign helped operating profit grow by 4.5 per cent year-on-year to £61.6m. The gross margin also increased by 90 basis points to over 50 per cent.
Dunelm will launch a new website this summer, at a total cost of £7m. The ambition is to improve the online customer experience, as well as service and handling. Management also stressed the need to invest in infrastructure to accommodate the company's growth, including more facitilies for made-to-measure curtains.
For the full year, broker N+1 Singer expects adjusted pre-tax profits of £117m and EPS of 43.6p, up from 40p.
| DUNELM GROUP (DNLM) | ||||
|---|---|---|---|---|
| ORD PRICE: | 924p | MARKET VALUE: | £1.9bn | |
| TOUCH: | 922-926p | 12-MONTH HIGH: | 1,027p | LOW: 717p |
| DIVIDEND YIELD: | 1.8%** | PE RATIO: | 22 | |
| NET ASSET VALUE: | 81p | NET CASH: | £26.4m | |
| Half-year to 28 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2012* | 340 | 59.8 | 22.2 | 4.5 |
| 2013 | 356 | 61.6 | 23.3 | 5.0** |
| % change | +5 | +3 | +5 | +11 |
Ex-div: 19 Mar Payment: 11 Apr *Period to 29 Dec **Excluding a 25p special dividend paid in October | ||||
