Dunelm declares special dividend after strong first half

For the 26 weeks to 2 January, the FTSE 250 curtains to cushions to kitchen appliances seller lifted sales 10.3% to £448.1m, with store like-for-like (LFL) sales up 3.4%, though numbers were boosted by an extra six days of winter sale in the recent calendar.

These extra days helped offset weaker underlying footfall in stores due to unseasonably warm weather in the second quarter and benefited the profit line to the tune of between £3.0m and £3.5m.

LFL sales growth was driven by a strong performance from curtains and bedding, particularly the new Kids range.

With gross margins improving slightly, profits before tax rose 10.7% to £75.5m, while earnings per share grew 11% to 29.3p.

Cash generation continued to be strong and as well as the interim dividend being increased by 9.1% to 6.0p per share, a special distribution of 31.5p per share was announced, which will cost £64m and be payable to shareholders on 4 March.

Under the direction of Browett, who was appointed last summer but only took the official CEO role on 1 January, management are focusing on the previous three-part growth strategy of growing LFL sales, rolling out new stores and growing the home delivery channel, with the new man alluding to "eight key initiatives" since put in place to enable the company to achieve these aims.

Browett, a former Dixons and Tesco man, said with the group still needing around 50 stores to provide genuine national UK coverage, London and the South East "provide a significant portion of this opportunity, although we recognise that it is a challenging market to penetrate".

Dunelm has eight outlets in Greater London and Browett feels stores are a critical way for the company to increase awareness around its brand and products.

Stores in the estate are built on a low-cost model "for a post-internet view of UK retailing", while the launch last July of a new website has seen growth return after an initial hitch that saw 24.4% growth in home delivery in the half-year.

For the rest of the year, the outlook statement declared: "After a solid performance in the first half, we had a strong sale after Christmas and we expect further good progress in the remainder of the year."

Broker Peel Hunt made no significant changes to forecasts and said it believed Dunelm "is capable of maintaining annual special dividend payments at this level, albeit the company has historically chosen to payout a higher dividend less frequently".

"Dunelm remains a core sector holding, but needs a stronger growth catalyst to merit a place on our 'buy' list."

Cancaccord analysts said when the impact of extra sale days was removed, implied underlying growth of around 5%-6%, which is more in line with the growth rate implied by consensus 2016 PBT of £127.7m.

Shares in Dunelm were up 7.6% to 887.92p by 0900 GMT on Wednesday.