Dunelm outperforms volatile retail market in third quarter

Despite a “volatile retail environment”, Dunelm Group reported an increase in third quarter revenue, aided by the recent acquisition of rival Worldstores.

The homeware retailer’s revenue for the quarter ended 1 April rose 11.4% to £255.1m, compared to last year, while total revenue excluding worldstores increased 1% to £231.3m.

FTSE 250 Dunelm bought struggling retailer Worldstores for £8.5m last November and said that its integration is in line with expectations and expects the business to be at least break even in the financial year ended 30 June 2018.

Meanwhile, third quarter like-for-like growth, which combines LFL store sales and home delivery, declined 2.2% to £212.5m, this however included a 21% increase in home delivery sales and the company said that it continues to see “strong growth” in the online business.

With Easter being later this year, the company expects about 1.5% of LFL sales to move from the third to the fourth quarter, which broadly nets off with the 1.7% of LFL sales that moved from the second quarter to the third as a result of the timing of the winter sale compared to last year.

Dunelm’s gross margin percentage, excluding Worldstores, increased by 75 basis points, reflecting a short-term benefit and it expects half of this to continue into the fourth quarter. The run rate of gross margin going into the next financial year is expected to be broadly flat compared to the same time last year.

Worldstores' gross margin improved by 500 basis points compared to the first five weeks of trading under Dunelm’s ownership, as its stabilisation of the business and focus on customer service reduced the level of cancellations and returns.

At the beginning of April, the company’s net debt was about £117m and daily average net debt across the third quarter amounted to £88m, due to investment in Worldstores.

Chief executive John Browett said: "We are trading in a volatile retail environment at present, but have continued to outperform the homewares market and so enhanced our position as market leader. As a result, our expectations for the full year remain unchanged.

"We continue to focus on and invest in our long-term growth initiatives, to ensure that Dunelm's low cost model remains a key strategic advantage allowing us to generate cash whilst maintaining our unique offer of value for money, an unrivalled range and great service."