Homewares leader Dunelm (DNLM) loses 4.4% at 865.5p as second quarter like-for-like sales disappoint. The quilts-to-cushions seller becomes the latest shopkeeper to bemoan the impact of mild temperatures over the key Christmas period, though not all analysts are buying this excuse.
You can read Dunelm's trading update for the 26 weeks to 2 January here. At first glance, second quarter like-for-like sales growth of 3.9% looks healthy, helped by a surge in home deliveries following July's website relaunch. Sadly, this growth is flattered by the impact of last year's 53rd week, which means an extra 8 days of the winter sale has winged its way into this year's numbers.
So adjusting for this benefical calendar impact, the underlying quarterly like-for-like performance was in fact a 0.8% decline, a slowdown from the first quarter's 5.5% growth rate that drags the first half growth rate back to 2%.
Leicester-headquartered Dunelm blames sluggish quarterly sales on reduced footfall caused by the particularly mild weather in the run-up to Christmas, particularly unhelpful for a purveyor of value-for-money bedding, fabrics and furniture, products designed to make homes more cosy as the cold nights draw in.
Dunelm joins sector peers including Next (NXT), Marks & Spencer (MKS) and Bonmarche (BON:AIM) in blaming unusually mild weather on its sales blip, though this excuse is traditionally frowned upon by investors.
Haitong Securities' Ben Hunt displays healthy scepticism, writing: 'Management blames mild weather and low footfall levels in stores for today’s slowing in underlying LfLs. Given the majority of stores are located out of town, we are not entirely convinced by the latter excuse however we are cognisant that while comparatives were easier on a 1 year basis, two year comparatives were considerably harder.'
Hunt is also disappointed by the lack of new store openings this year. He comments: 'Management now anticipates the year end superstore count will be just 152 (we had expected 159). We wonder if management are now struggling to find suitable locations where rents are aligned to sales densities, given management is now focusing on opening stores in London.'
Despite the sales setback, Shares remains bullish about Dunelm, a high-quality, strongly cash-generative retailer with a visible path to grow towards a 200 UK superstore target. New CEO John Browett, the former Dixons Retail, Monsoon and Tesco.com boss whose CV includes a stint at Apple (AAPL:NDQ), should assist with Dunelm’s digital push.
We echo the thoughts of David Stoddart, analyst at Edison Investment Research, who notes: 'Encouragingly, the company reports a strong post-Christmas sales performance, suggesting a strong exit rate for the quarter. H1 gross margin expanded by circa 30 basis points. The online business continues to grow and the new store pipeline remains healthy. While the H1 performance is likely to be viewed as disappointing, the growth story remains one of the more persuasive in UK retailing.'
