Search Share Prices
Dunelm sales keep surging but profits will dip in first half
Homeware retailer Dunelm kept up good sales growth in three months to end-December to drive further market share gains, though margins were dented slightly.
The FTSE 250 group opened five superstores in the quarter to take its total up to 169 and reported total sales of £297.5m for what is the second quarter of its financial year, a 13.6% increase on the same period a year earlier and contributing to first-half sales rising 18.6% to £545.4m.
Like-for-like sales in the second quarter increased 3.4% as store LFL sales grew 1.1% and online LFLs surged 30.5%. This was slower than the growth in the first quarter, meaning saw total LFL sales were up 6.0% for the first half of the year.
Group gross margins continued to fall, partially driven by the acquisition of online specialist Worldstores in November 2016 and partly by a higher level of seasonal and end-of-season products in the wider range, leading to a 1.55-percentage-point decline in the second quarter, following a 2.2pp decline in the first. Excluding these factors, core margins were in line with the previous year and management expect some margin improvement in the second half.
Chairman Andy Harrison, who expects to welcome new chief executive Nick Wilkinson next month, said growth in the quarter had driven continued market share gains and that further rapid online growth, coupled with passing the first anniversary of the Worldstores acquisition, helped online sales grow to 18.5% of total sales in the first half, including click-and-collect.
"We are well on the way to becoming a genuine multi-channel retailer," he said, adding that despite what was seen as a dip in margins, overall the business remains "on track".
"We are well positioned to deliver good full year profit growth, after a small reduction in the first half, largely due to the consolidation of Worldstores losses."
Independent retail analyst Nick Bubb said the news was "satisfactory" but noted the small reduction in first half profits.
George Salmon at Hargreaves Lansdown said the top-line growth was eye-catching but this has been boosted by discounting.
"Having more items on sale has got the punters flocking in, but it shouldn't be forgotten that by dropping prices the group is taking a hit on profit margins.
"While we'll be keeping an eye on margins from here on, it's hard not to be impressed by the progress made in the last six months or so. The acquisition of Worldstores gives the group greater online exposure, an area it's clearly looking to leverage."