Shares in Dunelm (LON:DNLM) rallied after the homewares retailer reported an improvement in trading through the latter part of Q1. There was also relief as the cushions-to-kitchenware seller kept FY27 profit guidance unchanged.
CEO Clo Moriarty said she was ‘encouraged by the momentum we built as the quarter progressed, following the impact of the exceptionally warm weather’. Back in September, Dunelm downgraded its earnings outlook to reflect the impact of summer heatwaves and the heavy investment needed to support Moriarty’s ‘Winning Hearts & Homes’ strategy.
An improving trend
The bedding-to-blinds purveyor reported a 1.1% rise in sales to £433 million for the 13 weeks ended 26 September. This growth was driven by stronger trading in the second half of Q1, following a soft start impacted by hot weather and the tough consumer backdrop.
| KPI | Q1 FY27 |
| Total sales | £432.7m |
| Total sales growth | 1.1% |
| Store-enabled like-for-like sales growth | (0.8%) |
| Digital % of total sales | 41% |
Source: Dunelm, Q1 trading statement
Sales were down by about 3% year-on-year in the first six weeks of Q1 during a period of exceptionally warm weather, before returning to growth of circa 4% in the final seven weeks. ‘Despite the challenging trading backdrop, we believe we continued to outperform an overall soft market,’ insisted Dunelm.
The FTSE 250 retailer also highlighted a 10 basis point year-on-year increase in gross margin in Q1, which reflected a currency tailwind.
Guidance maintained, for now
At this early stage in the year, Dunelm is sticking with its guidance for flat adjusted pre-tax profits of £211 million for FY27.
‘As our plans gather momentum, and with benefits weighted towards the second half of the year, we currently expect adjusted pre-tax profits to be lower than the prior year for the first half,’ cautioned the company.
Winning hearts & homes
Moriarty added: ‘We are making good progress with Winning Hearts & Homes, our plan to create a bigger, better and bolder Dunelm. We’re taking clear actions to build a stronger customer proposition and create the capabilities needed to support our long-term growth. The early signs are encouraging and reinforce our confidence in the opportunity ahead.’
She added: ‘As customers turn to cosy evenings, seasonal celebrations and spending more time at home, we’re looking forward to helping them enjoy those moments through our peak trading period.’
Given fierce homewares competition, increased costs and squeezed consumer spending, we wouldn’t rush to buy Dunelm shares here. News of an uptick in sales and gross margins is welcome. But in our view, risks to forecasts remain to the downside, at least near term.
Nevertheless, we applaud Moriarty’s ambition to build a ‘bigger, better and bolder’ Dunelm. The Leicester-based retailer remains the leader in the UK’s £25 billion homewares and furniture market. And despite its scale, it still only captures a small proportion of the total market opportunity. This means there is still significant headroom for long-term growth.
Peel Hunt reiterated its ‘buy’ rating on Dunelm. ‘The rebound in sales post heatwave is encouraging, against the backdrop of a weaker market,’ commented the broker. ‘We are pleased to see much greater disclosure around the strategic progression, setting the framework for clarity when it starts to take effect on the business.’
Canaccord Genuity is also bullish with an £11.85 price target for the stock. The broker said: ‘We continue to believe Dunelm is well-placed to take further share in a highly fragmented market, supported by a clear strategy to increase customer engagement, wallet share and market share.’
