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Dunelm ups profit expectations

As the market weakens, the homewares group is delivering sales and profit growth
Dunelm ups profit expectations

Dunelm (DNLM) recently completed the transition to a new digital platform, making its online offering faster, more flexible and able to handle more traffic as the homewares group works to broaden its sales channels. So far it is paying off, with like-for-like revenue growth coming in at 5.6 per cent in the six months to 28 December. 

IC TIP: Buy at 1,319p

Encouragingly, digital growth is not cannibalising conventional demand at the group’s store network. Indeed, footfall increased over the period, as digitally enabled purchases such as reserve and collect, click and collect, and tablet-based sales grew to 19.2 per cent of total revenues, from 15.7 per cent in the corresponding period. Still, the growth rates clearly show the trend towards online shopping; store like-for-like sales were up 2 per cent for the period, while online grew 33.2 per cent.

Management said the wider homewares market had been “soft”, but this did not stop the group from reporting a 120 basis point improvement in gross margins, driven by gains made in sourcing and fewer price reductions. The group did not participate in the wider market’s Black Friday or other pre-Christmas discounting.

Sales growth for the period was flagged in the group’s January trading update, but the latest announcement gave a promising appraisal on trading post-period-end. Management said a strong start to the third quarter meant pre-tax profits would likely come in ahead of analyst expectations of £135m-£137.3m. Accordingly, house broker Peel Hunt upped its full-year adjusted pre-tax profit and EPS forecasts to £140m and 55.5p, respectively.

Net debt excluding lease liabilities jumped from £25.3m in June last year to £67.7m in December. However, this is largely due to £64.6m paid out in special dividends in October and represents a reduction of 7 per cent on the same point in 2018. Net debt represented 0.31 times historical 12-month cash profits at the period end, just shy of the 0.2 threshold under which management will consider another special dividend.

TOUCH:1,315-1,323p12-MONTH HIGH:1,319pLOW: 689p
Half-year to 28 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
% change+6+19+21+7
Ex-div:19 Mar   
Payment:14 Apr   
*Does not include IFRS 16 lease liabilities of £327m, equivalent to 2.27 times net assets.