Stocks in Focus: Dunelm
This week Colin Manktelow of NW Brown looks at homewares and furniture retailer Dunelm Group following the recent trading update on its second quarter, including the Christmas trading period.
The update came as positive news for investors, after the retailer announced a 9% increase of sales in its core Dunelm brand, up to £304m, in the 13 weeks to December. The like-for-like sales were boosted by the popularity of unicorn-themed goods and sheepskin rugs that contributed to the 5.7% sales growth in its 170 stores. The company has also improved its online operation, having completed the incorporation of the Worldstores acquisition. The result has seen online sales grow by 37.9%.
Dunelm’s profitability has been significantly improved by closing the loss-making Worldstores and Kiddicare websites. The company’s online offering has been consolidated onto the Dunelm.com website. This pleased investors who had ongoing concerns following the purchase of the Worldstores group in 2016. The view being that these companies were an unnecessary distraction for management and dragged on profits due to low margins. Dunelm’s gross margin has now improved following the elimination of lower margin sales from these struggling businesses.
Following the recent online sales growth, management are now focusing on the launch of an improved web platform in the summer, which they hope will deliver a better experience for their online clients and help the company to continue to capitalise on rising online sales.
The update resulted in a surge in the share price, with investors now having more confidence that the company could deliver full year results ahead of projections, which should result in greater shareholder returns through special dividends. However, despite this strong performance, management remain cautious about the outlook due to “unprecedented levels of uncertainty facing consumers and businesses in the UK”.
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