Shares in homewares retailer Dunelm (DNLM) edged up 1.3% to £11.60 on Wednesday after it posted a matter-of-fact fourth quarter trading update and warned that costs in its online business would weigh on earnings in the next 12 months.

Total sales in-store and online in the 16 weeks to 27 June were down 29% on a like for like basis, with store sales down almost 50% and online sales up 85%.

All 173 Dunelm stores were shut from March to the middle of May, when the firm began a phased reopening programme. By 22 June all stores were open for business again and the firm saw a ‘strong customer response.’

The quarter ended with group sales up 20% in June and online sales up 121%, as home delivery sales and ‘click & collect’ gained momentum.

CAUTIOUS OUTLOOK

Having been loss-making in April and May due to store closures, the firm returned to profitability last month but it still expects full year pre-tax earnings to be between £105 million and £110 million or 13% to 17% lower than last year.

Also, despite its stores being open again and customers getting used to the new ‘shopping experience’, it still isn’t willing to offer any earnings guidance for the coming year.

‘Whilst the homewares market has proven to be relatively resilient, we continue to take a cautious view of the short to medium term outlook given the ongoing uncertainty around Covid-19. We will monitor consumer trends over the summer and, where possible, provide further guidance for full year 2021 at our full year results in September.’

COSTS TO RISE

Spending was brought down as stores went into ‘hibernation’, and the firm conserved cash by cancelling the interim dividend. It also benefitted from £80 million of working capital inflows thanks to VAT deferrals and delayed stock delivery, but it admits these factors will ‘largely reverse’ this year.

It also cautions that ongoing investment in its digital business, which has been operating at record volumes with direct to customer services running at four times pre-crisis levels, will crimp profit growth this year.

‘Technology costs in the full year 2021 P&L will increase by around £8 million as we continue to invest in our digital capabilities and no longer capitalise these costs on the balance sheet, as previously announced.  We will also be investing in supply chain capacity to meet the high growth ambition for our home delivery channels.’

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Issue Date: 15 Jul 2020