Share Prices & Company Research

Press Release

20 February 2018

Dunelm profits weighed down as acquisition squeezes margin growth

Home furnishing retailer Dunelm Group have announced that higher sales at its Worldstores business helped boost first-half year profits by 0.7%.

However, underlying pre-tax profits were down 8% due to a squeeze on gross margin, following its acquisition of Worldstores and discounting in the period.

Paul Murray, Investment Manager at the Market Harborough office of investment management and stockbroking firm Redmayne Bentley, said: “While the core Dunelm business appears to be performing well, the guidance on Worldstores is disappointing, however in the medium term the acquisition is likely to enhance Dunelm’s e-commerce capability.

“The main challenge appears to still be from the subdued homewares and furniture market, which has been one of the weaker sub-sectors in non-food retail of late, and it may take some time now for the market to rebuild confidence in the growth prospects within the furniture market. However, we expect the group as a whole to continue to gain market share as weaker players exit the market.”

Revenue increased to £545.4m from £460.5m whilst like-for-like sales growth was 6%, including store sales growth of 3.5%.

Although pre-tax profit rose 0.7% to £56.3m from £55.9m, adjusted pre-tax profit before exceptional items fell 8% to £60m from £65.2m.

The FTSE 250-listed company said its strong sales performance in the first half should facilitate good full-year profit growth, and it is building toward its medium-term revenue target of £2bn, of which 30%-40% will be from online sales. This compares with 18.5% in the first half.

The company said it expects its gross margin to be more stable in the second half - similar to the first-half margin. Continued investment in infrastructure and to bring its legacy Worldstores business up to date means operating costs could grow slightly faster than sales for the full year.

Dunelm also said Chief Financial Officer (CFO) Keith Down will leave the company on June 15th. If it hasn't appointed a new CFO by then, David Stead will become interim CFO and join the board until a replacement is found. Mr. Stead was Mr. Down's predecessor as CFO.

Please remember, investments and income arising from them can fall in value and you may lose some or all of the amount you have invested. Past performance and forecasts are not a reliable indicator of future results or performance. Our view does not constitute a recommendation to buy or sell the shares of Dunelm.
Dunelm profits weighed down as acquisition squeezes margin growth
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