Shares in Dunelm (DNLM) rose 6.1% to £13.38 as the bedding, curtains and kitchenware retailer resumed dividend payments after gaining market share in a growing homewares market during the first half to Boxing Day.
The homewares leader has proved a clear winner during various lockdowns as consumers have invested in home projects, and strong online sales helped to offset the impact of Covid-related store closures in the second quarter.
During lockdown, Dunelm has effectively pivoted to become a pure-play online retailer and as lockdown 3.0 restrictions ease, the retailer is well-placed to profit from a release in pent up consumer demand.
Despite its stores being closed for now, the cash-generative retailer declared an interim dividend of 12 pence, citing its ‘strong H1 performance and confidence in the medium-term outlook’.
DIGITAL DELIGHT
For the 26 weeks to 26 December 2020, Dunelm’s pre-tax profit rose by 34.4% to £112.4 million as total sales jumped 23% to £719.4 million, while sourcing gains drove 50 basis point expansion in gross margin to 52%.
Market share growth came despite many of Dunelm’s competitors being allowed to remain open whilst its stores were in lockdown, and reflects the strength of a retailer that combines high quality stores with much improved digital capabilities.
Digital sales more than doubled in the first half and online participation has grown to 35% of Dunelm’s total sales, up from 20.4% last year.
‘Sales were particularly strong in the first quarter, before we had to navigate the various restrictions which impacted the remainder of the period,’ explained chief executive Nick Wilkinson.
‘These restrictions have become more severe in the second half of our financial year, with all but one of our stores currently closed, although we continue to serve customers through our digital channels, which have significantly advanced during the last year.’
VIEW FROM THE EXPERTS
Shore Capital noted that the outlook statement unsurprisingly highlights near-term uncertainty, yet pointed out Wilkinson’s comments ‘are upbeat highlighting both confidence about the future and the “challenger brand mentality” suggesting a clear runway to grow both active customers.
‘The reinstatement of an interim dividend reflects the board’s confidence in the medium term, in our view. Dunelm remains a well managed business, leveraging the investments made in the online platform and remains what we call one of the best-in class retailers with strong cash generation capabilities and a tight focus on stock and cost controls.’
Numis commented: ‘Despite near-term uncertainty on when stores re-open, given the strong first half performance and with management “never more confident about the future” they have chosen to reinstate an interim dividend of 12p. We remain excited about the long-term market share opportunity for Dunelm which we currently don’t see reflected in forecasts or valuation.’
AJ Bell investment director Russ Mould added: ‘What Dunelm has done extremely well in terms of capturing this redirected spend is significantly upping its digital game.
‘This investment of money and management resources paid off in spades as the various lockdowns saw its physical stores shuttered.
‘For it to be a retail winner is a genuinely impressive achievement when you consider it is neither a web-only operator nor does it operate in a sector which has been protected entirely from store closures. As well as enhancing its internet presence, Dunelm has also got basics like stock and cost control right.
‘The disappearance of obvious competitors from the market, perhaps most notably department store chain Debenhams, could provide a further boost in terms of market share gains as society gradually reopens.’
