Shares in home furnishings retailer Dunelm (DNLM) slid more than 6% to 764p after the firm delivered a less than stellar first-quarter update.
Today’s news on trading shows in-store like-for-like sales for the three months to 28 September up just 2.9%. This is lacklustre stuff from a company that has in the past defied the general retail doom and gloom, issuing a string of positive updates this year and raised earnings forecasts.
Worryingly for investors, the company also notes that although the quarter got off to a good start, ‘September trading was mixed, in part reflecting a softer homewares market’.
PROTECTING PROFITS
On the positive side, online sales are growing at a healthy clip, up almost 35% on a like-for-like basis, albeit from a low base, underscoring the company's high hopes for its digital platform.
In the meantime, there is some consolation from Dunelm's refusal to chase volume sales at all costs and avoid deeply discounted promotions. That protects profit margins.
Gross margins, or profits after the cost of getting products in store, increased 1.3% as the company sold fewer clearance items and the benefits of cheaper product sourcing fed through.
However, the slowdown in like-for-like sales growth from a 10% to 12% range in the two previous quarters to low single digits suggests that there are limits to what even a well run business like Dunelm can do in the face of shoppers pulling in their spending horns.
UNPREDICTABLE NEAR-TERM FUTURE
There is no mention of Brexit uncertainty or bad weather - the go-to excuses for most retailers this year - and chief executive Nick Wilkinson is still confident that Dunelm can meet its full year earnings expectations, although there is no change in guidance which will also have left investors feeling flat.
With the UK due to leave the European Union in a matter of weeks shoppers are scaling back their spending on non-essential items and focusing on ‘must-haves’ so Dunelm will have its work cut out growing sales this quarter.
