Shares in homewares retailer Dunelm (DNLM) jumped 2.5% to £13.78, breaking above their February high, after the firm posted a resilient third quarter trading update and said full year earnings could beat market expectations.

TOUGH CONDITIONS

Trading in the three months to the end of March was ‘significantly impacted’ by the pandemic as all 174 of its stores had to shut on 5 January, even though other chains selling homewares were allowed to stay open as ‘essential’ retailers.

The firm’s Click & Collect service kept stores ticking over at around 35% of their previous-year revenues, while home delivery lifted that figure to 83% by the end of the quarter as digital sales more than trebled.

With its stores closed, the winter sale promotion was smaller than usual, which helped lift the third quarter gross margin by 0.3%, and Dunelm expects its fourth quarter margin to be up on last year assuming stores reopen as scheduled on 12 April and there are no further restrictions.

BRIGHTER OUTLOOK

Despite some ongoing minor disruption to the global supply chain and a working capital outflow of £90 million during the quarter, full year pre-tax profits are likely to be ‘modestly ahead of the top of the current range of analyst expectations’ (£120 million-to-£125 million), again assuming stores reopen next Monday and no further restrictions are introduced before the end of its financial year in June.

Chief executive Nick Wilkinson was upbeat despite the challenges of the last three months: ‘In a quarter when we were largely unable to open our stores, it has been very encouraging to see the strength of our digital channels which have enabled us to cover over 83% of sales from the same period last year.’

The firm is expecting a strong consumer response to the lifting of restrictions nest week. ‘We’re now looking forward to re-opening, with colleagues ready to welcome back customers through our doors.  We have worked hard to rebuild inventory levels and our stores are well stocked across our extensive product range’, said Wilkinson.

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Issue Date: 08 Apr 2021