Homewares market leader Dunelm’s (DNLM) shares hit an all-time high on Tuesday after the cushions, quilts and kitchenware retailer said trading has been ‘materially ahead’ of management’s expectations in the new financial year thanks to strong summer sales.

Nevertheless, the FTSE 250-listed bedding-to-curtains purveyor remained cautious in terms of the outlook, with management concerned over the uncertainty in the wider economy and the potential impact of further regional or national lockdowns.

PROFITING FROM PENT UP DEMAND

In an impromptu update ahead of full year results (10 Sep) for the year to 27 June, Dunelm said sales have been ‘strong’ in the last two months, up an impressive 59% year-on-year in July and 24% ahead in August.

Management, led by chief executive Nick Wilkinson, enthused that this sales growth was ‘materially ahead of our initial expectations’, news that sent the shares 5.3% higher to an all-time peak of £15.05.

Dunelm said the strong summer sales reflected pent up demand following store closures due to the lockdown, as well as the timing of its summer sale in August.

Management also attributed the positive sales showing to ‘the strength of our proposition within a resilient homewares market’, positive footfall growth to out-of-town superstores with space to enable social distancing, not to mention the continued strong growth in Dunelm’s home deliveries.

STAYING CAUTIOUS

Despite Dunelm’s year-to-date performance tracking comfortably ahead of expectations, management is staying grounded in terms of the outlook.

The board warned it is ‘very difficult to provide any meaningful guidance on the future outlook given the uncertainty in the wider economy and the potential impact of further regional or national lockdowns’.

Nevertheless, the leader in the £14 billion UK homewares market, also a player in the £12 billion domestic furniture market, remains confident in its ability to ‘adapt to the environment’ and continue to grow market share.

Shore Capital believes Dunelm is a ‘very good retailer, with generally well located retail park stores and high standards. To us, Dunelm will be, along with the likes of DFS (DFS), Next (NXT), Marks & Spencer (MKS), Primark and ScS (SCS), a survivor post the trauma for the industry posed by coronavirus, a stock that would not embarrass a consumer orientated fund.’

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Issue Date: 01 Sep 2020