(Alliance News) - Dunelm Group PLC on Wednesday raised its profit expectation after strong full-price sales in the second quarter, pushing shares to a three-month high and to the top of the FTSE 250 this morning.
The Leicester, England-based homewares retailer reported total sales of GBP407 million in the 13 weeks that ended December 25, its second financial quarter. This was up 13% on a year ago at GBP360.4 million in total sales and up 26% on two years ago at GBP322.4 million.
Digital sales represented 33% of this total, down from 41% a year ago, though up from 21% two years ago. Dunelm added that it will continue to invest in its digital fulfilment capacity "at pace" moving forward.
Jenny Bell of AJ Bell said this investment into digital sales was a key plank of the transformation of Dunelm under Chief Executive Nick Wilkinson.
Bell said that improvement and expansion in online sales has really helped Dunelm during periods when footfall in its stores has either been "reduced or wiped out entirely thanks to restrictions or people’s reluctance to go out".
Nonetheless, Dunelm had "smashed it out of the park yet again", according to AJ Bell, enjoying a "Christmas sales boom" which Bell reasoned was driven by people spending more time indoors due to the restrictions and thus feeling "more likely to want to upgrade our furniture, bedding or curtains".
Dunelm said that growth was broad based, across nearly all its product categories, adding that a strong performance in furniture reflected better availability and extended ranges.
Gross margin increased by 160 basis during the second quarter and 80 points during the first half, ahead of its expectations, amid higher full-price sales of seasonal ranges. Gross margin for the full year is now seen down 30 to 50 basis points from financial 2021, which is better than expected, the company said.
Dunelm said it now expects first half pretax profit of GBP140 million, up from GBP112 million a year ago and GBP84 million two years before.
John Stevenson of Peel Hunt said this was significantly ahead of its GBP122 million forecast.
The company continued that, in the absence of any significant Covid-related disruption, the company expects that financial 2022 pretax profit will now by ahead of market expectations which are currently estimated between GBP167 to GBP190 million.
In financial 2021, pretax profit was GBP157.8 million. Dunelm's financial year ends in June.
Peel Hunt upgraded its profit before tax expectations for the full year, increasing to GBP206.1 million from GBP178.8 million with earnings per share at 81.1 pence. This, Stevenson explained, assumes full-year revenues of GBP1.6 billion.
For financial year 2023 estimates, Peel Hunt upgraded pretax profit to GBP206 million from GBP192.4 million with earning per share at 81.1p. Stevenson explained that the caution was rooted in costs rather than revenue, in keeping with the wider sector.
Looking forward, Dunelm said it will mitigate the impact of inflation on commodity costs and freight rates by working closely with suppliers to create sourcing benefits, managing the mix of products across our price bands whilst maintaining choice throughout the range. Dunelm said it would also increase retail prices where appropriate.
Shares in Dunelm were up 5.4% at 1,412.00 pence on Wednesday afternoon in London.
Peel Hunt advised to Buy.
By Heather Rydings; heatherrydings@alliancenews.com
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Dunelm (DNLM)