Dunelm delivers steady year-end update despite homewares decline

A trading update from homewares retailer Dunelm showed steady growth for the year to 2 July, with pre-tax profit remaining on course to hit targets of around a £128-129m range.

Chief executive John Browett said it was another solid performance, "particularly given the more difficult retail trading environment which we believe has seen the homewares market decline in the quarter".

Total revenue for the fourth quarter grew by 1.8% to £203.8m in spite of volatile trading conditions from the changeable weather conditions and a general retail slow-down prior to the EU referendum.

Quarterly LFL sales declined 0.6% due to the distortion from the timing differences from last year's 53-week year but underlying LFL growth was much stronger at +2.9%, with the third quarter having enjoyed the benefit of an earlier Easter to boost LFL sales by 1%.

Full year LFL sales, smoothing out all timing effects, grew 2.5%.

The total number of stores trading by the year end was 152, with two new opening, in Nottingham and Sheffield, in the final quarter to both replace existing stores.

Browett said the company was continuing to increase its share of the homewares market through its "focus on delivering everyday value and excellent service for customers".

On trading prospects post the Brexit result, he acknowledged that the current uncertainty "makes the future trajectory of the economy and consumer confidence unclear", however he was confident that with its market leading Dunelm "will continue to strengthen its position through its low cost operating model, everyday value, consistent cash generation and strong balance sheet".

On that note, after payment of £108m in ordinary and special dividends in the last 12 months, net debt at the year-end is expected to be in the region of £80m.

Broker Canaccord said the growth was robust LFL sales growth, especially in light of the slowing rate of store openings as the group moves towards its 200 target.

"The shares have been marked down sharply since the Brexit decision, presumably because Dunelm is perceived as housing related and prone to falls in discretionary consumer spending. We cannot disagree with the first perception, but we do disagree with the second, given that the average transaction value at Dunelm is around £20."