(Alliance News) - Home furnishings retailer Dunelm Group PLC was one of the pandemic's biggest beneficiaries, but there's every chance its "tills will continue to ring" even as Covid headwinds subside and inflationary pressures ramp up.
The Syston, Leicestershire-based retailer said its pretax profit for the half-year to December 25 jumped by a quarter annually to GBP140.8 million from GBP112.4 million.
This was on revenue which surged 11% to GBP795.6 million from GBP719.4 million.
Gross margin improved by 80 basis points, the retailer said, due to higher full-price sales in the recent period and the comparison period being hurt by store lockdowns.
For the second half, Dunelm said trading has so far been "encouraging". It forecasts annual pretax profit to be in line with recently upgraded consensus, which it put at GBP206 million, with a range of GBP198 million to GBP218 million.
For the previous financial year, pretax profit amounted to GBP157.8 million so it could see a 31% rise in financial 2022.
AJ Bell analyst Russ Mould commented: "Dunelm is reaping the benefits of having an incredibly well-run business and the tailwind that Covid has brought to spending more money doing up the home."
Mould noted that a company like Dunelm could ordinarily suffer when consumers tighten purse strings. Inflationary pressures and rising energy prices mean the cost of living in the UK will skyrocket.
"If someone has a few hundred pounds less in their pocket after paying the bills each month, they are going to make some tough decisions about how the remaining cash is used. Do people really need to buy more cushions for the home or new curtains," Mould questioned.
"At first glance, one might think Dunelm is vulnerable as many of its goods are non-essential. However, what we might see is a shift in the type of products being bought. There is always going to be some demand for towels, lights, cooking equipment and bedding, all of which is sold by Dunelm. The retailer should also benefit from having bulked up its value proposition, with more entry-price products and promotional deals."
The analyst continued: "A greater volume of lower-priced items might not necessarily be good for its profit margins, but there seems a good chance that its tills will continue to ring during what could be a difficult time for many other retailers."
Broker Peel Hunt rates Dunelm at Buy with a 1,750 pence price target.
Peel hailed Dunelm's first half and drew attention to its shareholder payout plans.
Dunelm will pay 14.0 pence per share for the six months that ended December 25, up from 12.0p a year before. It also will pay a special dividend of 37.0p, which the company said was "to return to leverage in line with published capital policy".
"Once again, management brought greater insight into the scale of market share gains and customer penetration, which only served to highlight the potential ahead. Dunelm is moving in tandem with consumers, as range investment and strong value credentials, supported by capacity investment and improved infrastructure, are driving online traffic, in-store sales densities and engagement," Peel added.
Dunelm shares were 2.7% higher at 1,298.00 pence each in London on Wednesday afternoon. The stock has risen 2.9% over the past 12 months.
By Eric Cunha; ericcunha@alliancenews.com
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