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Dunelm delivers but caution prevails

The homewares retailer has had a strong year, but Brexit uncertainty still threatens
September 4, 2019

Dunelm’s (DNLM) full-year results suggest the home furnishing retailer has finally shrugged off any residual integration issues that weighed on group performance following the acquisition of Worldstores in 2016. Reported profits were at the upper end of expectations, driven by a 160 basis point increase in the gross margin and a growing share of the homewares market.

IC TIP: Buy at 889p

Improved profitability combined with tight cost control had a knock-on effect on cash generation, with free cash flow almost tripling to £154m. As we flagged in our July buy tip (920p, 4 July 2019), this has prompted a precipitous decline in net debt. This enabled management - in line with its policy of returning surplus cash - to declare a special dividend of 32p.

In contrast to the troubles in the wider retail market, Dunelm recorded a 10.7 per cent increase in like-for-like sales, thanks to growth from both the store portfolio and online channels. However, chief executive Nick Wilkinson sounded a cautious note on the outlook, highlighting the potential risk Brexit poses for consumer spending as the group enters its peak trading period. 

The Bloomberg consensus forecast is for EPS of 52p in 2020, up from 49.9p this year.

DUNELM (DNLM)   
ORD PRICE:889pMARKET VALUE:£ 1.80bn
TOUCH:888-891p12-MONTH HIGH:992pLOW: 483p
DIVIDEND YIELD:3.1%PE RATIO:18
NET ASSET VALUE:92pNET DEBT:14%
Year to 29 JunTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20150.8412347.521.5
20160.8812950.525.1
20170.969236.326.0
20181.059336.326.5
2019*1.1012650.228.0
% change+5+35+38+6
Ex-div:31 Oct   
Payment:22 Nov   
*Does not include a special dividend of 32p per share, to be paid on 11 October with an ex-div date of 19 September