ii view: decent results but Dunelm CEO to retire

First-half results to 28 December

• Revenue up 2.4% to £894 million
• Pre-tax profit up 0.2% to £123.2 million
• Interim dividend up 3.1% at 16.5p per share
• Special dividend unchanged from last year at 35p per share

Chief executive Nick Wilkinson said: 

"Our performance over the first half reflects the growing attraction of the Dunelm offer for a wide range of customers, and the quality and resilience of our business model. Amidst a challenging backdrop for retail, those attributes have helped us deliver increased sales, a strong gross margin, and both customer and market share growth.

“Customers love Dunelm, but we can grow to become a destination for more customers, across more categories, more of the time.”

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ii round-up:

Dunelm Group (LSE:DNLM) today reported gains in sales and market share as the homewares retailer also announced the retirement of its chief executive of the last seven years, Nick Wilkinson.

Increased volumes and a 0.3% gain in market share to 7.8% helped drive first-half revenue up 2.4% to £894 million. A profit margin of 52.8% aided a 0.2% gain in pre-tax profit to £123.2 million. Dunelm will now begin looking for a new head, with Wilkinson staying on until a successor is found.  

Shares in the FTSE 250 company moved between losses and gains in UK trading having come into these latest results down by a tenth over the last year. That’s in contrast to 14% and 20% gains for rivals Kingfisher (LSE:KGF) and Next (LSE:NXT). The FTSE 250 index itself is up 9% over that time. 

Dunelm sells items ranging from curtains and bedding to furniture and paints. A 3.1% rise in the interim dividend to 16.5p per share also came with an unchanged special dividend of 35p per share. 

Digital sales during the period increased to 39% of Dunelm’s total, up from 36% a year ago. The retailer is also expecting to open its 200th store during the current second half.

Accompanying outlook comments flagged encouraging early second-half trading, with current City forecasts for full-year profit of between £204 million and £214 million in line with the company's own estimates. That’s up from last year’s £205 million. 

A third-quarter trading update is scheduled for 17 April. 

ii view:

Starting out as a curtain stall in Leicester market and coming to the stock market in 2006, Dunelm today sells around 85,000 products and services. It employs over 11,000 people across almost 200 stores in the UK and Ireland, with many housing one of its Pausa coffee shops.

For investors, a change of CEO offers some uncertainty and given his robust track record. The tough consumer environment including high borrowing costs should not be ignored. Staff costs will rise when UK employer taxes increase, while a forecast price/earnings (PE) ratio that matches the three-year average may suggest the shares are not obviously cheap. 

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More favourably, a new chief executive could look to inject new vigour into the retailer’s strategy. Market share gains are being made. Dunelm’s product range now stretches into DIY products, such as paint, as well as services like made-to-measure window treatments, while new stores are being opened. 

In all, and given a forecast dividend yield of over 4% and consensus analyst fair value estimate in excess of £12 per share, fans of this FTSE 250 retailer are likely to remain loyal. 

Positives: 

• Growing sales
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• Heighten costs

The average rating of stock market analysts:

Buy