Shares in homewares retailer Dunelm (DNLM) surged 7% to an all-time high of £15.64 in early trading on news it expects full-year pre-tax profits to be ‘significantly ahead’ of analysts’ expectations, which were upgraded to a range of £128 million to £134 million as recently as last month.

Having seen strong sales since the bulk of its brick and mortar stores reopened (12 April), and despite an uncertain short-term outlook, the high-quality curtains, quilts and kitchenware seller now sees pre-tax profits topping £148 million for the year to June 2021. By 10am shares had settled up 4% to £15.18.

STRONG SALES SINCE REOPENING

Shares flagged Dunelm as a likely reopening winner in our recent retail sector report in the belief the retailer is well-placed to profit from a release in pent-up consumer demand.

Over the first seven weeks of the fourth quarter which started on 28 March 2021, Dunelm’s total sales were 59% higher than the pre-pandemic comparative period in 2019 – its stores were closed in the comparative full year 2020 period.

Dunelm said sales growth has been ‘very strong’ since the majority of its physical stores reopened on 12 April, and insisted it has outperformed the homewares market in the five weeks since its stores reopened based on GfK data.

Encouragingly, the retailer has continued to see good digital growth from its home delivery and click and collect channels.

Besides the strength of Dunelm’s customer proposition, CEO Nick Wilkinson attributed the high sales growth to pent up demand following the extended store closure period, a buoyant homewares market and a boost from the unseasonably cold Spring weather as consumers spent on making their homes cosy.

FAVOURABLE READ-ACROSS

Shore Capital believes that for the UK’s discretionary consumer scene, ‘notably home related plays, such an update may lead to a favourable read across; we think of N Brown (BWNG:AIM) with its enhanced home offer, DFS (DFS) and ScS (SCS).’

While the broker concedes there is an element of pent up demand in today’s trading update, ‘the macro-economic picture for the UK, whilst admittedly fragile due to the developments with Covid variants and those folks that seem to think it is a good idea not to be vaccinated, is materially improving.

‘UK unemployment data is structurally lower than many had predicted, which is the most important source of confidence building support that consumers’ need to engage in big ticket expenditure.

‘Hence, with many folks unlikely to have the overwhelming urge to go on a foreign holiday in summer 2021, demand for home related goods could yet be stronger and more sustained than we previously thought.’

In addition to pent-up demand driving trading, AJ Bell investment director Russ Mould explained Dunelm will have also benefited ‘from a poor bout of weather. Bored at home, but with more freedom to get out, consumers are likely to have ventured to shops with good parking spots just to pass the time. Dunelm is often located on retail parks where parking is plentiful.

‘The surge in the property market will also play to its strengths. People either moving home or doing up their home will find plenty of reasons to stock up on homewares from Dunelm.

‘However, there is an underlying feeling that Dunelm will have to enjoy the sales spike while it lasts, as it can’t go on forever.’

READ MORE ON DUNELM HERE

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Issue Date: 19 May 2021