Shares in Dunelm (LON:DNLM) rallied after the UK homewares leader maintained FY26 profit guidance off the back of ‘solid’ Q4 sales.
The cushions-to-curtains seller’s CEO Clo Moriarty insisted Dunelm’s best growth opportunities are ‘still in front of us’. Moriarty plans to set out her bold growth strategy for the FTSE 250 business in September.
A ‘solid’ showing
The bedding-to-kitchenware purveyor assured investors FY26 pre-tax profits will be in line with the company-compiled consensus estimate of £210 million. This followed the delivery of ‘solid’ Q4 sales of £428 million, up 2.9% year-on-year despite a tough consumer spending backdrop.
Q4 sales growth accelerated from the softer 2.1% and 1.6% increases seen in Q3 and Q2 respectively.
Growth was achieved despite Q4 trading being impacted by two heatwaves, during which Dunelm suffered lower levels of store footfall. The first of these hot spells also coincided with the opening week of its usual summer sale, which ‘disproportionately impacted trading’. Digital sales accounted for 45% of the total in Q4, helped by the launch of the company’s app.
Total sales for FY26 rose 3.1% to £1.825 billion. Gross margin for FY26 expanded 10 basis points to 52.5%, as a currency tailwind cushioned the blow from customers shopping in promotional events.
Untapped potential
CEO Clo Moriarty said: ‘We have delivered a solid performance both in the quarter and across the year. There is, however, much more we must do to build on our core strengths and realise our untapped potential.’
Moriarty continued: ‘From expanding and improving our store estate to continuing to innovate digitally, we’re beginning to demonstrate what a bigger, better and bolder Dunelm can look like. As the market leader in a large and highly fragmented market, we believe our best growth opportunities are still in front of us.’
There is lots to like about Dunelm. The retailer is a cash generative, progressive dividend payer with growth to go for in a fragmented UK homewares market.
Dunelm highlighted a stronger pipeline of store openings planned for FY27. Moriarty expects the number of new stores opened to be towards the upper end of the firm’s medium-term guidance to open between five and 10 new superstores per year.
It is also reassuring to see Dunelm hold FY26 profit guidance. However, consensus estimates had been massaged down following a period of softer demand.
Nevertheless, we don’t see any rush to pile into the stock just yet. Competition in homewares remains fierce, Dunelm faces increased costs and the consumer is grappling with cost-of-living pressures. As such, there may be further earnings downgrades to come. Avoid for now.
Read the press release here: https://corporate.dunelm.com/investors/
