Dunelm first-half profit drops 26%

FTSE 250 homewares retailer Dunelm posted a 26% drop in pre-tax profit in the first half amid a weaker market.

In the 26 weeks to 31 December 2016, pre-tax profit fell to £55.9m from £75.5m a year ago, as sales rose 2.8% to £460.5m.

On a like-for-like basis, however, sales declined 1.6%.

Dunelm said unusually warm weather in the first quarter reduced store footfall. However, the she second quarter saw an improvement in performance in its stores and customers responded well to the company’s enhanced seasonal product lines, especially its new Christmas offer.

Online sales also grew consistently through the half at around 20%, but overall sales were held back as the start-up of Dunelm’s new depot was harder than expected, making availability lower than usual.

Despite these issues, the group continued to take market share, helped by five new stores and its online growth.

The company lifted its interim dividend by 8.3% to 6.5p per share, reflecting strong cash generation.

Chief executive John Browett said: "We are in a transitional year for Dunelm and it has been a particularly busy first half - whilst we are operating in a challenging retail environment, especially in homewares, we remain focused on investing in and developing our business for the future. We are still in the midst of this exciting journey, and whilst trading was slightly softer than we would have liked due to a weaker market, we continue to increase our share and are confident that we will emerge as an even stronger market leader.

"We remain committed to our long term plans for the business, with our three-part growth strategy at the centre of everything we do. We have opened five new stores in the period and have more openings and refits planned in the second half. Our home delivery channel continues to perform well and our acquisition of Worldstores will accelerate our online capabilities and growth potential.”

The recently acquired Worldstore reported an operating loss of £1.8m, with management now pointing to the upper end of its range guidance for the full year operating loss of £5m-10m, with the shift in guidance reflecting a need for more time to re-establish supplier continuity within WS, which has also had a drag effect on turnover.

At 0802 GMT, the shares were down 5.1% to 649.70p and by late afternoon were down 8.6% at 625.5p.

"With gross margins also dipping after the acquisition of Worldstore Group and trading conditions looking difficult, these are challenging times for Dunelm," said broker Hargreaves Lansdown.

But Canaccord Genuity said it was difficult to gauge the results against market expectations, but both core Dunelm and WS performed better than it had expected, having forecast group PBT of £62.5m, even including the WS losses.

Analysts noted that operational deleverage impacts were offset by around £2.5m of cost savings in the period from a number of sources, with management indicating a similar level in the second half.

"This underlines management's focus on a lean cost model, notwithstanding the ongoing investment in store openings, IT and infrastructure. Subject to any new news emerging in the presentation meeting, we do not anticipate any changes to our PBT forecasts at this stage."