ii view: Dunelm details record profit

This major FTSE 250 retailer has watched its share price fall sharply during 2022. We assess prospects. 

Full-year results to 2 July

• Revenue up 18.4% to £1.58 billion
• Pre-tax profit up 35% to £212.8 million
• A final dividend of 26p per share
• Total ordinary dividend for the year up 14.3% to 40p per share
• Net debt of £24 million, down from cash of £128 million

Chief executive Nick Wilkinson said: 

"We feel confident and well prepared to weather the current economic pressures - we emerged from an unprecedented global pandemic as a bigger, better business and we believe we have the tools in place to do that again. That said, the operating and economic environment is extremely challenging.”

• Discover more: Trading Account | Share prices today | Top UK shares

ii round-up:

Homewares retailer Dunelm Group (LSE:DNLM) today detailed record profits following its first full year in three without pandemic disruption, with results for the year ahead on track to meet City forecasts. 

Sales up by close to a fifth helped push pre-tax profit up by just over a third to a record £209 million, broadly inline with analyst forecasts, helped by robust cost management and gains in market share. 

Dunelm shares rose by more than 4% in UK trading having halved since the start of the year. Shares for clothing and homewares retailer Next (LSE:NXT) and DIY retailer Kingfisher (LSE:KGF) have fallen by close to a quarter. The UK focused FTSE 250 is down by almost a fifth.

• Recessions are becoming more likely – here’s how to invest
• Shares to protect against persistently high inflation
• Two big dividends for adventurous income seekers

Dunelm sells around 50,000 product lines including bedding, curtains, cushions, quilts and furniture. Sales for the first ten weeks of the new financial year from early July onwards were summarised by management as ‘robust.’

Active customer numbers rose 8.5% year-over-year, with increases seen across all demographics. A final dividend declared of 26p per share brings the total ordinary dividend payment for the year to 40p per share, an increase of 14.3% from the prior year. It adds to special dividends paid previously during the year of 65p and 37p per share. 

Broker UBS reiterated its hold stance on the shares following the results, with an estimated fair price target of 850p per share. 

A first quarter trading update is scheduled for 20 October. 

ii view:

Dunelm was founded in 1979 as a market stall business, selling ready-made curtains. Headquartered in Leicester, today it employs over 11,000 people across more than 170 predominantly out-of-town stores. It became a multi-channel retailer in 2005, launching its own website. Digital related sales during this latest full year accounted for 35% of overall sales, down from 46% in during the pandemic impacted 2021.

For investors, elevated inflation, rising interest rates and a cost-of-living crisis offer a tough backdrop. Costs in general for businesses are also rising, supply chain challenges more broadly persist, while a move into net debt from a prior position of net cash following the previous payment of special dividends is also noteworthy. 

More favourably, sales have continued to grow, rising 41% from the full year 2019. A portfolio of around 200 stores are being targeted, digital sales are now well established, while system improvements have included new ecommerce and furniture fulfilment operations during the year. 

On balance, and while some caution looks sensible, an estimated future dividend yield of over 4% appears enough to keep investors interested barring any significant impact from a recession.

Positives: 

• Growing sales
• Attractive dividend yield (not guaranteed)

Negatives:

• Uncertain economic outlook
• Business costs generally are rising

The average rating of stock market analysts:

Strong hold