Dunelm rewards shareholders as H1 profits, sales rise

The dividend was lifted 7% to 16p a share. Shareholders will also receive a special 35-a-share payout as pre-tax profit for the six months to December 30 rose 4.8% to £123m and sales increased 4.5% to £872.5m.

Full-year guidance was maintained, despite the "uncertain" consumer outlook in line with analyst consensus estimates at £199m -207m.

“Despite ongoing pressures on consumers, we are encouraged by the wide variety of new customers shopping with Dunelm, and existing shoppers also coming back more frequently," said chief executive Nick Wilkinson.

Dunelm cited strong sales of sofas and dinnerware, while the group also reported healthy Christmas trading. The company is also targeting five to 10 store openings this year.

CAUTION ON H2 MARGINS

It also reported a net benefit in the half from lower shipping rates and adverse foreign exchange movements and reiterated guidance for gross margin to increase by 100 basis points.

However, it warned the rate of improvement was expected to slow in the second half due to the combined headwinds of foreign exchange movements and lower freight benefits.

"We are managing the impact of ships taking longer, more costly routes as they avoid the Red Sea area," the company said, referring to attacks on commercial ships in the region by Iran-backed Houthi militants operating from Yemen.

AJ Bell investment director Russ Mould said the result was impressive "given the pressures on household budgets in the UK. It suggests the company is getting the balance right on pricing, quality and product".

“The company’s reference to attracting new customers suggests some people may be trading down from more premium outlets to Dunelm’s more affordable offering."

“All in all, the impression you get from Dunelm is that this is a company which really understands its market and knows how to capitalise on emerging trends through product innovation."

“Dunelm’s move to increase the ordinary shareholder payout and pay a special dividend on top demonstrates its confidence in the outlook. It may help to reassure any investors concerned about the company’s reference to being impacted by the disruption to Red Sea shipping routes. Notably, workarounds to address this issue mean the improvement in margins seen in the first half is set to slow in the second half.”

Reporting by Frank Prenesti for Sharecast.com