Dunelm Share News (DNLM)

(Sharecast News) - Dunelm Group updated the market in light of "rapidly changing developments" around the Covid-19 coronabirus pandemic on Tuesday, saying it had been working closely with its staff to assess the risks that they and its customers were facing from the outbreak across its business.

The FTSE 250 home furnishings retailer said that on Monday, it decided to close its stores to customers, intending to offer services both as contactless collection points and to perform activities such as befriending services and local deliveries to the vulnerable.

However, it said the announcement by the prime minister around the closure of non-essential retailers had led it to review its approach, and it was now intending to temporarily close down all of its customer-facing operations in order to understand and comply with the new restrictions and guidelines.

"We had already taken significant and decisive actions to support the most vulnerable and lowest paid colleagues in our business, and now we will go further to support the national effort to defeat this pandemic," the board said in its statement.

At the same time, Dunelm said it had taken actions to protect the cash resources of the business, including its decision to cancel the interim dividend, which was due to be paid in April.

"Our capital policy is unchanged and we remain committed to returning surplus cash to our shareholders.

"In light of the extraordinary circumstances, the board believes it is important to retain the cash in the business until further certainty is gained."

Dunelm said that, notwithstanding the latest government guidelines, it remained determined to ensure that it used the "challenging times" to develop a stronger proposition for its customers which would ensure that when this pandemic is over, we have an even better business.

On the financial front, the company said it had access to £175m of financing facilities through a committed revolving credit facility of £165m, maturing in March 2023, and a £10m overdraft.

As at 21 March, the firm said its net cash position was £11m, comprising a drawdown of £14m against its revolving credit facility, and £25m cash.

"The board has taken the decision to draw down in full against its RCF given the heightened levels of uncertainty and will place surplus cash on deposit.

"The group continues to expect that it will satisfy its covenant requirements at the FY20 year-end."

Further to those decisions, the board said it had also taken immediate actions to protect the cash flows of the business, including reducing capital expenditure and all non-essential operating costs as appropriate.

"We are in close contact with our suppliers and are managing our stock requirements in light of latest trading information.

"We are also liaising with our landlords to improve our rent payments schedule.

"Our board of directors have agreed to either waive their non-executive fees or to take a reduction in their executive pay for the next three months."

Additionally, Dunelm said it had taken into account the latest guidance from the government regarding their intentions to support businesses through the crisis, noting that its cash flows would benefit from the business rates holiday and the deferment of VAT and corporation tax payments.

It said it also expected to utilise the government's jobs retention scheme to help fund the pay of its colleagues who might no longer be able to work in the business, saying it was exploring the scheme, which provided additional funding options for corporates.

"The situation is very fluid, and we remain focused on balancing the right actions for both the short and longer-term," the board said.

Looking at its trading, Dunelm said that for the first 10 weeks of the third quarter ended 7 March, total like-for-like sales were up 6.5% - a "good performance", given the strong comparative from the third quarter of the 2019 financial year, which saw 12.5% total like-for-like growth.

Over the 10 weeks, like-for-like stores were up 2.4% and Dunelm.com was up 31.9%, with total growth, including the benefit of new store openings, ahead 7.9%.

During the period, the company's gross margin also continued to improve, in line with the levels observed in the first half.

"However, over the past two weeks ended 21 March, we have seen a progressively negative impact on our trading as a result of the Covid-19 pandemic, with total like-for-like sales down 8.8% driven by reduced footfall to our physical stores," the board said.

"Our online business continues to grow and in recent days, as store footfall has fallen further, we have seen a material increase in online demand."

Before the recent downturn, the group said it was performing well and in line with its expectations.

However, given the uncertain backdrop, it now did not think it was appropriate to give financial guidance for the 2020 financial year and beyond.

Its board said it remained confident in the strategy over the longer term, and believed Dunelm would continue to build on its market leading position.

"These are unprecedented times, but Dunelm is a strong business which has been built over 40 years on the foundations of close relationships with our customers, colleagues, suppliers and shareholders," said chief executive officer Nick Wilkinson.

"Our business principle to 'do the right thing' is more important than ever in the current situation."

Wilkinson said the company had "a very strong team" in place which was "adaptable and committed" to ensuring the long-term success of the business.

"We are navigating the challenges of this situation, acting in the interests of all our stakeholders, and doing the work necessary to ensure that we come through this crisis in a stronger position and with a better business for the future."

At 0857 GMT, shares in Dunelm Group were down 5.52% at 625p.