Homewares retailer Dunelm (DNLM) lowered its full-year profit guidance citing ‘softer’ Q2 trading. The ‘Home of Homes’ said first-half sales rose 3.6% to £926 million, but Q2 sales growth was just 1.6%. Gross margins improved modestly (+60 basis points), but that was largely down to favourable FX.
After a strong Q1, trading in Q2 was ‘more challenging’, particularly around Black Friday and into December. While it stayed disciplined in terms of promotions, the firm said it saw especially high levels of competition through discounting.
‘Whilst the UK retail environment remains variable, we have acted on some clear lessons from the first-half, including targeted steps to improve availability’, said CEO Clo Moriarty.
| Share price: 968p (-17.2%) | PE: 13 |
| Market cap: £1.64bn | Yield: 6.8% |
CUTTING GUIDANCE
Even so, weaker sales in Q2 and generally cautious consumer sentiment means the firm undershot its H1 profit target.
The board is now forecasting H1 pre-tax earnings in the range of £112 million to £114 million, below previous expectations. The firm also sees full-year profit towards the low end of market estimates.
Company compiled consensus had been pitched within a range of £214 million to £227 million, leaving a £222 million mid-point, but that’s likely to come down after today’s announcement.
There are increasing signs Black Friday and Christmas were disappointing for retailers, especially in terms of homewares. Even stalwart Marks & Spencer (MKS) saw a drop in non-food sales during the period.
In fairness, Dunelm has had its own problems, including a fire at its Yeovil store, which only recently reopened. There’s also a second London store open for business, in Wandsworth, London.
Today’s 17% sell-off is probably an overreaction, and Dunelm’s Moriarty continues to project optimism. ‘I see multiple opportunities to extend Dunelm’s market-leading position – there is much more in the tank.’
But with retail markets likely to remain volatile for the time being, and investors cautious, we believe bargain hunters might do better to let the dust settle for now.
Read the press release here: https://corporate.dunelm.com/
Disclaimer: This content is for information only and is not investment advice. Always do your own research before investing. Click here to see full disclaimer.
