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Dunelm shares pay for Worldstores remedial work

The market has not taken the furnishings retailer's strategic acquisition all that well
February 8, 2017

Homewares retailer Dunelm (DNLM) acquired Worldstores last November for £8.5m, primarily for the mum-and-baby brand Kiddicare. At the time, Dunelm boss John Browett called it his very own "Black Friday deal"; a choice set of words given the extensive online capabilities of the Worldstores group. Together with improvements to Dunelm's own digital offering, which drove higher traffic, home delivery sales rose by around 20 per cent.

IC TIP: Hold at 635p

But absorbing the new business hasn't been without complication. Completing outstanding deliveries to customers while making changes to the supply chain resulted in a £1.8m loss for Dunelm during the first five weeks of ownership. Exceptional costs associated with the integration also reached £9.3m and, in the short term, Dunelm admits losses for the full year will be at the top end of the previously stated range of £5m-£10m.

As for the underlying business, the market was clearly disappointed by a 1.6 per cent slip in like-for-like sales, largely a result of unseasonally warm weather in the first quarter, reducing footfall, and fewer winter sale days falling in the accounting period. Adjusting for the latter, underlying sales growth would have been around 0.9 per cent.

Analysts at Peel Hunt forecast pre-tax profits of £114m for the year to June 2017, giving EPS of 44.2p, compared with £129m and 50.3p in FY2016.

 

DUNELM (DNLM)
ORD PRICE:635pMARKET VALUE:£1.3bn
TOUCH:634-635p12-MONTH HIGH:1,000pLOW: 610p
DIVIDEND YIELD:4.0%PE RATIO:15
NET ASSET VALUE:50p*NET DEBT:103%

Half-year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2015448.175.529.46.00
2016460.555.921.96.50
% change+3-26-26+8

Ex-div: 23 Mar

Payment: 13 Apr

*Includes intangible assets of £27.2m, or 13.4p a share