Shares in homewares retailer Dunelm (DNLM) gave up 2.5% to £15.18 even though the firm reported first quarter sales up more than a third on last year, significantly ahead of its estimates.

Revenues for the 13 weeks to 26 September were £359.1 million, an increase of 36.7%, with digital sales rising from 17.6% of the total a year ago to almost 30% by the end of the quarter.

BUOYANT MARKET

The firm said it had seen ‘meaningful growth across our total retail system, with online (home delivery) sales growth continuing at the levels previously reported, and strong growth in stores as we continue to win market share in a buoyant homewares market.’

Strong demand meant the firm discounted fewer goods, which together with better sourcing led to a 100 basis point or 1% improvement in the gross margin (sales minus cost of sales).

The company’s net cash position was £175.2 million compared with £24 million last year, although it was flattered by the timing of the September month end payment run which was paid after the quarter end. Still, in a sign of confidence, the firm has decided to use some of its cash pile to repay the £14.5 million it received under the Job Retention Scheme.

ELEMENT OF CAUTION

While the uncertainty over new Covid restrictions meant the firm couldn’t give any financial guidance for the current year, chief executive Nick Wilkinson remained upbeat about trading: ‘Recent months have seen homewares become even more relevant, as people spend more time in their homes up and down the country’.

‘While we remain cautious about the continued uncertainty in the wider market, the resilience and flexibility of our business model leaves us well positioned as we enter our peak trading period and we remain confident in our ability to grow market share and help even more customers create a home they love’.

Shore Capital analyst Greg Lawless called the results ‘another resilient trading update showing the acceleration in the online participation of the company’.

He added: ‘Dunelm remains a well-managed company with a clear strategy and good cash generation. Despite an uncertain consumer outlook, we believe the firm can continue to leverage its market leading position and continue to prosper’.

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Issue Date: 15 Oct 2020