- Strong Q3 digital sales
- Gross margin gains
- Conservative outlook
Dunelm (DNLM) shares rallied 6.5% to £10.11 after the homewares retailer reported ‘strong’ third quarter sales growth which came as a relief to investors following a softer second quarter showing from the rugs-to-pillows purveyor.
The retailer also held firm on its full-year 2025 guidance, with consensus calling for pre-tax profits of £208 million, and said it remains ‘confident’ in reaching 10% market share in the medium term.
DIGITAL DELIVERY
Total sales ticked up 6.3% to £462 million in the quarter ended 29 March 2025, a welcome step-up on the first half performance as Dunelm benefited from ‘broad-based growth’ across its homewares and furniture categories.
Encouragingly, the growth was predominately driven by volume, reversing the negative trend seen over Q2, while Dunelm also highlighted a ‘good start’ to its new Spring/Summer ranges.
Digital revenues proved particularly strong in Q3, rising to 41% of revenue, with the performance supported by strong Click & Collect sales and extended ranges.
And thanks to measures taken to manage input costs, gross margins were up 30 basis points year-on-year, giving Dunelm the confidence to leave full-year gross margin guidance unchanged at between 51.5% and 52%.
UNDERSTANDABLY CAUTIOUS
Despite the pleasing third quarter growth, Dunelm left its annual pre-tax profit guidance in line with consensus at £208 million with management mindful of ‘increased levels of uncertainty and volatility in the current environment, and the known labour cost headwinds’.
Well-regarded CEO Nick Wilkinson, who announced plans to step down in February, said: ‘Our customers are now enjoying getting their homes and gardens ready for summer and we’re focused on being as relevant as possible for the warmer months ahead.’
He added: ‘We remain very mindful of the wider backdrop and the impact of increased uncertainty on consumer sentiment, but maintain our focus on strengthening Dunelm's position as The Home of Homes.’
CUSHIONING THE IMPACT
AJ Bell investment director Russ Mould stressed that Dunelm is stocking products people want at a price they’re willing to pay, while a continued store roll-out and improvements to its digital offering are also helping.
‘For now, this seems to be cushioning Dunelm from the impact of escalating macro-economic uncertainty, which could be an obstacle to households loosening the purse strings,’ explained Mould.
‘A roll-out of self-service tills should help boost efficiency as the company looks to contend with rising costs associated with changes to the national living wage and employer national insurance contributions in last year’s Budget.
‘The business continues to face the tricky task of replacing Nick Wilkinson, who announced plans to step down in February. There was no update on this process in today’s update and Wilkinson is sticking around until a successor is appointed.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
