Shares in Dunelm (DNLM) improved 1% to 946p after the UK homewares retailer reported stronger Q3 sales growth and declared a 25p special dividend. The stock sold off heavily in January after the cushions-to-curtains seller lowered full-year profit guidance citing ‘softer’ Q2 trading.
| Share price: 946p (+1%) | PE: 11.5x |
| Market cap: £1.9bn | Yield: 5% |
However, investors cosied up to ‘The Home of Homes’ today after Dunelm maintained its FY26 pre-tax profit guidance. The company-compiled average of analysts’ expectations is £214m, with a range of £210m to £221m.
Pricing discipline
Dunelm’s H1 pre-tax profits in came in 7.5% lower year-on-year at £114m, reflecting weaker trading in Q2, particularly around Black Friday and into December, as well as the timing of certain costs.
The good news is H1 gross margin expanded by 60 basis points, from 52.8% to 53.4%, thanks to pricing discipline and currency gains. And Dunelm insisted sales have strengthened in Q3 to date.
Management remains confident in the retailer’s plans for H2 with the full launch of Dunelm’s app planned for spring and furniture availability recovery plans in place.
From market stall to market leader
New CEO Clo Moriarty commented: ‘Since joining Dunelm in October, I’ve been struck by the magic that has turned this very special business from a market stall into a market leader. Dunelm is a universal brand with something for everyone, powered by a compelling combination of physical stores, a growing digital platform, and passionate colleagues who care deeply about delivering for customers.’
She continued: ‘‘We delivered a solid first‑half performance despite a softer second quarter, and we are seeing stronger sales growth in early Q3 following a good Winter Sale and an encouraging response to our new Spring ranges.’
And another special
Drawing confidence from its cash flows and scope for further market share gains, Dunelm treated shareholders to yet another special dividend. The retailer declared a 25p special payment on top of a 3% increase in the interim dividend to 17p.
We share Moriarty’s view that there’s ‘much more in the tank’ at Dunelm.
Despite its FTSE 250 status and sizeable market cap, the cash-generative retailer still has only 7.9% share of the combined UK homewares and furniture market share.
That suggests significant headroom for growth for the company. Yet while the shares are down 15% year-to-date, retail markets remain volatile with UK consumers feeling the pinch. So bargain hunters might do better to sit on the sidelines for a while longer.
Read the press release here: https://corporate.dunelm.com/investors/results-reports-and-presentations/
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