Dunelm bedding
Dunelm flagged ‘more challenging and volatile market conditions’ with demand softening in March / Image source: Dunelm
  • Resilient third-quarter sales
  • Softer demand in March
  • Full year guide spooks investors

Leader in the UK’s fragmented homewares market, Dunelm (DNLM) said it delivered continued sales growth and market share gains in its third quarter as the retailer also nudged up its full year gross margin guidance.

Why then, did shares in the affordable curtain, quilt and kitchenware seller cheapen 5% to £10.20 in early dealings today?

Dunelm flagged ‘more challenging and volatile market conditions’ with demand softening in March, while guidance for annual profits to be ‘broadly’ in line with market forecasts rang alarm bells with investors who read the comment as a mild profit warning.

ANOTHER RESILIENT QUARTER

Dunelm’s total sales ticked up 3% to £435 million in the 13 weeks ended 30 March 2024, driven by volume growth from the expansion of store and ranges and delivered despite homewares and furniture markets which remain ‘challenging’.

Despite the impact and costs of Red Sea supply disruption, the retailer’s full year gross margin is now expected to expand by roughly 110 basis points year-on-year.

UNPREDICTABLE BACKDROP

Looking ahead, Dunelm expects full year pre-tax profit to be ‘broadly in line’ with the company-compiled consensus of £202 million, with a range of £200 million to £205 million, implying modest 5% year-on-year growth.

‘While there are signs the outlook for UK consumers may be easing in some areas, it remains difficult to predict when this might translate into better conditions in our markets,’ cautioned the company.

WHAT DID THE CEO SAY?

Nick Wilkinson, Dunelm’s digitally-savvy chief executive, commented: ‘We have delivered a resilient performance in Q3, with continued volume-based sales growth through a period of more challenging and volatile market conditions.

‘Whilst discretionary spend remains under pressure, our relevant and attractive product offer continues to resonate with customers as they shop across our broad ranges to find quality and value for all areas of the home.’

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THE EXPERT’S VIEW

Russ Mould, investment director at AJ Bell, explained Dunelm has transformed itself into a really sharp retail operator over recent years but that does not mean it is immune from the vagaries of consumer demand.

‘Homewares are somewhat down the priority list when people are looking to allocate their pressured household finances and the property market remains shaky, with the scaling back of expectations for interest rate cuts doing nothing to help matters.

‘So, while third-quarter sales were decent, taken as a whole, March saw an appreciable slowdown and guidance for full year profit to be “broadly” in line with expectations could be taken as a mild profit warning.’

Mould continued: ‘When it comes to the factors the company can control, Dunelm is doing the right things and is showing no signs of panic despite volatile trading conditions. It continues to invest in a digital platform which has already seen vast improvement in recent years and is pressing ahead with its store roll-out programme.’

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.

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Issue Date: 18 Apr 2024