Why Dunelm shares are down 7% despite solid results

• Annual sales up 3.8%
• Ordinary dividend hiked 2.3%
• Market share gains slow

Despite lacklustre consumer confidence and inflationary cost pressures, homewares specialist Dunelm (DNLM) delivered a robust final set of results under outgoing CEO Nick Wilkinson and flagged a positive start to the new financial year.

So why were shares in the dividend-paying curtains-to-cushions seller down 7% at £11.54 in early deals on 9 September?

Well, they’d already rallied strongly since April, so signs of a continued slowdown in market share gains, a rise in net debt and Dunelm’s cautious consumer outlook proved the catalysts for profit-taking.

> More detailed chart

SHARE GAINS SLOW

Pre-tax profits for the year ended 28 June rose 2.7% to £211 million at the self-styled ‘Home of Homes’, bang in line with guidance on revenue up 3.8% to £1.77 billion, while gross margins expanded by 60 basis points to 52.4% thanks to a strong summer sales performance.

Dunelm’s share of the combined homewares and furniture market grew by 20 basis points to 7.9% last year, leaving its 10% medium-term target in sight, but this represented a continued slowdown in share gains amid sluggish growth in active customer numbers.

Soon to have a new CEO at the helm in the form of Clo Moriarty, Dunelm said it was ‘pleased’ with early trading in the new financial year having seen a positive response to its Autumn/Winter ranges, although management warned it has ‘yet to see signs of a sustained consumer recovery’.

HANDING OVER THE BATON

Wilkinson lauded ‘a year of milestones for our business; opening our 200th store and first inner London location, expanding Click & Collect, extending our UK Made-to-Measure manufacturing, entering our first market outside the UK, and buying the brand and archive of Designers Guild. All these investments are centred on creating a better offer and experience for our customers.’

He added: ‘As I move on, I leave behind a special business, with a strong business model, well positioned for the future.’

Goodbye for now from Shares

Shore Capital sees Moriarty’s appointment as an ‘excellent one’, noting the new broom has been ‘a key feature of the operating board that has delivered a step change in operational effectiveness and intensity at Sainsbury’s (SBRY) under the leadership of Simon Roberts, most recently overseeing both retail operations and the development of the group’s technology stack.’

HEAD ABOVE WATER

Russ Mould, investment director at AJ Bell, said Dunelm is ‘holding its head above water in a tricky retail environment, yet investors clearly want more judging by the negative market response to its latest results.

‘Sales and profits have moved higher, and the company is cautiously optimistic about its future. However, profit margins have shrunk slightly, net debt has nearly doubled, and the company says it hasn’t seen any signs of a sustained consumer recovery.’

Mould continued: ‘Dunelm needs to keep the ship steady in this tricky environment and it’s doing a fair job. CEO Nick Wilkinson can be proud of the business he’s helped to grow as he bows out with this set of results.’

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.

LEARN ABOUT DUNELM

---