• Homewares vendor sees double-digit sales and profits growth
  • Market share gains continue to outpace rivals

The home improvement boom has continued in earnest at Dunelm (DNLM). Strong sales of homewares and furniture in the six months to Christmas prompted the retailer to announce a second special dividend in as much time. 

The furniture seller, which operates 175 shops in the UK, prospered over the pandemic as consumers upped spending on their homes, and diverted cash away from foreign travel and hospitality. 

Sales were particularly strong over the Winter sale period, with sales up 13 per cent in the three months to 25 December compared with the previous year, when coronavirus restrictions over Christmas had led the retailer to aggressively discount products. 

A higher proportion of full-price sales boosted the profit margin this year, and management now expects pre-tax profits for the full year to be almost a third higher than they were in 2021 – in line with analysts’ recently upgraded forecasts of £206mn in the full year.

Dunelm’s market share growth has been a major strength in recent years, as the firm continued to benefit from the collapse of indebted high-street rivals like Debenhams.

Dunelm has far outstripped the overall market for homewares, furniture and decorative DIY, which has grown in low-single-digits over the past decade, only speeding up slightly over the last two years to a compound annual growth rate of 2.2 per cent. 

Meanwhile, Dunelm has enjoyed a 12 per cent CAGR over the last two years, and 10 per cent over the last five years. Customers rose to 13mn in 2021, up by 3mn in the past five years, also supported by the relaunch of Dunelm’s online presence in 2019. Digital sales now account for a third of all the furniture vendor’s revenues, and a recently opened ecommerce centre in Stoke should provide runway for plenty more growth.

The biggest concern for the coming year will be whether Dunelm can keep up with inflationary pressures. With consumer spending growth already starting to slow in January due to higher costs of living, this could reduce the amount households are willing to spend on their homes. Nevertheless, as a retailer with a focus on value, broker Peel Hunt views Dunelm as a potential “net beneficiary” of tightening consumer wallets. 

Russell Pointon, director of the consumer sector at Edison Group, noted that Dunelm has “navigated well through the stormy seas caused by Omicron, inflationary pressures and supply chain issues”. Despite the wider economic uncertainty, a strong set of results signals the furniture chain’s “resilience against the wider challenges which have been plaguing the retail sector”, he added. 

With house prices rising to record highs in the UK, more people may be tempted to stay put and instead improve their current houses, which could mean more good news for Dunelm. The asking price isn’t prohibitive when you factor a rating of 16 times forecast earnings and a forward dividend yield of 3.2 per cent. Buy.

Last IC View: Buy, 1,500p, 16 Sep 21

ORD PRICE: 1,285p MARKET VALUE: £2.6bn
TOUCH: 1,283-1,286p 12-MONTH HIGH: 1,599p LOW: 1219p
Half-year to 25 Dec Turnover (£mn) Pre-tax profit (£mn) Earnings per share (p) Dividend per share (p)
2020 719 112 44.6 12
2021 796 141 55.9 14
% change +11 +26 +25 +17
Ex-div: 17 Mar      
Payment: 8 Apr      
NB: DY excludes special dividend of 37p, to be paid on 18 Mar, ex-div 24 Feb