Barclays downgrades Dunelm after disappointing H1 numbers

Barclays downgraded its stance home furnishings retailer Dunelm to 'equalweight' from 'overweight' on Wednesday and slashed the price target to 630p from 810p following "disappointing" first-half results and commentary on Worldstores.

The bank said pre-tax profit of £60m was 5% below is estimate, while the downgrade to guidance for Worldstores - which is now expected to incur a pre-tax loss of £7m to £8m for the year - is concerning.

"Although we still believe the acquisition provides Dunelm with a better online platform than it had previously, we think the process of consolidating websites and reaping the benefits of the combined businesses may be slower and more challenging than we had previously anticipated," Barclays said.

In addition, it highlighted concerns about store profitability, noting that while core Dunelm's online business has been growing well, in-store like-for-like sales have been less impressive. If this continues, it could hinder operating leverage as several store costs are relatively fixed in the medium term.

"Ultimately, we recognise the drivers of the story including store roll-out, improved online capabilities and an optically cheap valuation; but we lack confidence on execution in the near term."

The bank cut its underlying pre-tax profit estimate for 2018 to £114.5m from £122.2m and its estimate for 2019 to £128.6m from £141m. For 2020, it now sees underlying pre-tax profit of £143.7m from £165.9m.

At 1055 GMT, the shares were down 2.3% to 565p.