UK homewares leader Dunelm (LON:DNLM) delivered resilient results for what it described as a ‘challenging’ FY26. The cushions-to-curtains purveyor also unveiled a three-year growth plan to ‘win hearts and homes’.
This self-funding strategy aims to accelerate revenue growth back to mid-to-high single-digit levels. It will be supported by around £100 million of cost savings and accelerated investment in stores and digital channels.
| Share price: 777p (-12.4%) | Market cap: £1.79bn |
| PE FY27: 11.3x | Yield FY27: 5.2% |
Source: Marketscreener
So why were shares in the bedding-to-kitchenware seller marked down in early dealings? Well, the market didn’t like news of ‘significantly softer’ trading in the first six weeks of FY27. This slowdown was due to the extended period of unusually hot weather.
And Dunelm guided for ‘broadly flat’ adjusted pre-tax profits for FY27. That represented a downgrade on the 2% profit growth consensus was looking for. The downgrade largely reflects the heavy investment required to support the new strategy.
Heatwaves hit sales
Given the tough retail environment, Dunem’s results for the year to June 2026 were solid enough. After a rocky start to the year, sales grew 3.1% to £1.825 billion and pre-tax profits were maintained at £211 million.
Dunelm also gained market share and made good progress in developing its digital proposition.
Unfortunately, new CEO Clo Moriarty’s planned turnaround has been delayed by successive UK heatwaves over the summer. Moriarty warned ‘the recent extended period of hot weather drove significantly softer sales in the first six weeks of FY27’.
The good news is Dunelm has seen better trading in recent weeks. And Moriarty is encouraged by strong online conversion and store footfall.
Winning Hearts & Homes
Dunelm’s ‘Winning Hearts & Homes’ plan aims to boost growth while maintaining an adjusted profit before tax margin of around 11% and return on capital employed (ROCE) of around 30%.
The FTSE 250 retailer plans to remove around £100 million of ‘unproductive costs’ from its cost base by FY29. The savings will be fully reinvested in growth initiatives. Capital expenditure will be boosted by approximately £125 million above its current run rate over the period.
| FY27E | FY28E | FY29E | |
| Sales (£m) | 1,917 | 2,015 | 2,125 |
| Adjusted pre-tax profits (£m) | 211 | 221 | 234 |
| EPS (p) | 76.6 | 80.1 | 85 |
Source: Peel Hunt estimates
Dunelm has its sights set on improving revenue growth with store and digital expansions, as well as better customer loyalty.
For FY27, Dunelm expects adjusted pre-tax profits to be ‘broadly in line’ with Fy26. As one analyst put it: ‘The upshot is that FY27 looks like being a year of investment and refinement, rather than a year of profit growth, particularly as Dunelm noted that heatwaves led to a significantly softer start to trading.’
When Sharesify last covered Dunelm in July, we urged readers to avoid the shares. Our view was further downgrades could be incoming given tough homewares competition, increased costs and a squeezed consumer spending.
Today’s sell-off shows we were right to be cautious. While we see no rush to own the shares, we applaud management’s ambition to build a ‘bigger, better and bolder’ Dunelm.
The Leicester-based retailer is the leader in the UK’s £25 billion homewares and furniture market. Yet despite its scale, it still only captures a small proportion of the total market opportunity. This means there is still significant headroom for growth.
What are the analysts saying?
Peel Hunt reiterated its ‘buy’ recommendation with a £12.25 target price. ‘With revenue and profit growth stalling, Dunelm needed a reboot,’ said the broker. ‘Today’s strategy provides a roadmap to take sales growth back to mid to high single-digit levels within three years, within clear margin parameters. Beyond this, we see no reason why profit margins cannot grow higher if the group continues to build market share and customer loyalty.’
Shore Capital wrote: ‘With FY27 profits expected to be in line with last year we expect some investor caution, particularly for those with a preference for the higher yield. That being said, we do see an opportunity for a growth acceleration on the back of this investment and for Dunelm to emerge as a strong leader in the homeware space.’
