Out-of-town homewares retailer Dunelm (DNLM) gains 5.25p to 855.75p as encouraging annual results cushion the blow of chief executive officer (CEO) Nick Wharton's resignation. He's been replaced by Will Adderley, the executive deputy chairman who resumes his role in the hot seat 'with immediate effect'.
Wharton (pictured below) departs after less than four years in the hot seat at Leicester-based Dunelm. During his tenure, the one-time Halfords (HFD) finance director has overseen the delivery of significant shareholder value at the cash-generative seller of value-for-money cushions, quilts and crockery seller. His exit is somewhat surprising, given the structural growth opportunities still in front of the retailer, though Wharton reckons 'the time is right for a new challenge'.
Besides a strong share price performance and bumper cash returns via ordinary and special dividends, he has driven Dunelm into number one spot with a 7.4% share of the UK homewares market. Significantly, he has also built out the team and put in place the infrastructure required to support the future growth of the business.
The board wants that growth to be driven by product man and major shareholder Adderley (pictured below), the son of founders Bill and Jean Adderley who started the business as a market stall selling home textiles 30 years ago in Leicester. Adderley has worked for Dunelm his whole career, played a key role in formulating Dunelm's compelling long-term growth strategy and knows the homewares industry inside out.
Results for the year to 28 June from the running Shares Play of the Week, which you can scrutinise in detail here, are both robust and in-line with analysts' estimates. Pre-tax profits rose 7.3% at £116 million on a 7.8% total revenue advance to £730.2 million. Like-for-like sales were in positive territory, despite a disappointing start to the year caused by a heat wave in July 2013.
Underpinned by £77.1 million (2013: £74.6 million) of free cash flow, the total dividend rises 25% to 20p, building on a 25p (£50.7 million) special dividend paid in October. Further highlights include an 80 basis point gross margin gain to 49.5%, driven by increased direct sourcing as well as 60% plus growth in online revenues.
Shares believes the £1.72 billion cap's earnings growth momentum should continue as it secures market share and benefits from a recovery in both consumer confidence and the housing market. Dunelm's estate of 136 UK superstores leaves plenty of growth to go for towards a medium-term 200 target. Self-funded expansion beyond the Midlands and into the north and south of England should drive future earnings growth, supplemented by investment in multi-channel initiatives and Dunelm's first national TV advertising campaign.