Dunelm Regulatory News (DNLM)

15 July 2020

Dunelm Group plc

Fourth quarter trading update

Dunelm Group plc ("Dunelm" or "the Group"), the UK's leading homewares retailer, provides an update on its current trading performance and financial position for the year to 27 June 2020.

Restarting our operations

We closed both stores and online on 24 March and over the last three months have gradually re-opened all1 of our operations in a phased and controlled manner. Our first priority throughout the crisis has been the health, safety and wellbeing of our customers and colleagues. The social distancing and other measures we have introduced in our mainly out-of-town superstores and fulfilment operations have enabled us to offer a safe shopping and delivery experience.

1 We expect to open our Pausa cafés towards the end of July. There are 148 Pausa cafés across the store estate.

We restarted and gradually scaled up our online operations from the end of March and when our stores moved from 'non-essential' to 'permitted' status under Government rules in mid-May, we began a phased reopening programme. Most of our stores were open by the end of May and all 173 were open by 22 June.

During this period, we have benefited from the investment we made in our new digital platform, enabling significant online growth and allowing us to introduce new ways of serving our customers such as virtual Made to Measure consultations and a 'dark store' contactless click and collect offer.

Trading update

As previously reported, total sales for the 10 weeks to 7 March grew by 7.9%. Total sales for the last 16 weeks (from 8 March to 27 June) declined by 29.0%, with store like for like ("LFL") sales down 49.7% and online growth of 85.2%.

The table below shows the monthly total sales trend during the fourth quarter and the strength of the online offer. The strong recovery of sales in June was driven by a number of factors, including a level of pent-up consumer demand and the delayed start to our Summer Sale.

We have been operating our digital fulfilment channels at record volume levels. Home delivery fulfilment from our central distribution facility exceeded previous record levels in every week since April, and our supplier partners have increased their 'direct to customer' fulfilment capacities (running at 4x pre-crisis levels) to meet increased demand. However, due to high demand, online availability, delivery lead times and service levels have been under pressure.

Since the stores have fully opened, online home delivery sales have been c. 30% and click and collect have been c. 12% of the total sales mix respectively. As customers become more comfortable with the physical shopping experience under social distancing rules, we may see this digital proportion reduce, but it is difficult to predict future trends at this point in time.

Financial performance and position

At the start of the crisis we took quick and decisive action to manage our cash position and reduce our costs. We paused our overseas stock orders and asked our UK suppliers to stop replenishing our stores. Our Board and Executive team took voluntary pay reductions for three months and we cancelled the interim dividend. We made significant operational cost savings and effectively put our stores into hibernation, utilising the government Job Retention Scheme ("JRS") to preserve jobs where the work had temporarily gone away. The majority of our colleagues who were furloughed are now back at work. Claims under the JRS in FY20 were approximately £14.5m and we are no longer making claims in the new financial year.

These actions enabled us to partially offset the financial impact of the store closure period and to maintain a strong balance sheet. Having been loss making in April and May due to stores being closed, we returned to profitability in June.

Full year FY20 sales were £1,057.9m, a 3.9% reduction on the prior year (FY19: £1,100.4m). We expect that our FY20 PBT2 will be in the range of £105m-£110m (FY19: £125.9m).

2 FY20 PBT on IFRS 16 basis; FY19 on IAS 17. We estimate the impact of IFRS 16 on FY20 PBT to be a reduction of c. £2.5m.

FY20 gross margin was approximately 70bps higher than FY19, with second half margins broadly flat year on year as sourcing gains were offset by additional clearance activity following the unexpected store closure period. At year-end we had a clean inventory position with minimal exposure to seasonal stocks.

As at 27 June 2020, we had an underlying net debt position of c.£35m, reflecting that the actual net cash position of £45m included the benefit of approximately £80m of working capital inflows (both exceptional creditors, including VAT deferrals, and the delayed timing of stock inflows) which we expect to largely reverse in FY21.

As previously reported, the Group has access to existing financing facilities of £175m and secured eligibility from the Bank of England for funding under the COVID Corporate Financing Facility ("CCFF"). We do not anticipate that we will need to draw down on the CCFF facility.

Outlook

We have been pleased with the strong customer response since re-opening. Whilst the homewares market has proven to be relatively resilient, we continue to take a cautious view of the short to medium term outlook given the ongoing uncertainty around Covid-19. We will monitor consumer trends over the summer and, where possible, provide further guidance for FY21 at our full year results in September.

In addition to demand uncertainty, FY21 will be impacted by cost headwinds directly related to the impact of the virus. Social distancing measures within the operating models of both stores and distribution have led to higher costs to operate for the short-term; in total, we estimate these costs to be around £150,000 per week. Furthermore, we will not be able to deliver some of the productivity savings that we had previously anticipated to offset wage inflation (e.g. National Living Wage increases).

We expect that technology costs in the FY21 P&L will increase by around £8m as we continue to invest in our digital capabilities and no longer capitalise these costs on the balance sheet, as previously announced. We will also be investing in supply chain capacity to meet the high growth ambition for our home delivery channels.

We continue to develop our strategy of being a "customer first, digitally enabled business", taking into account all we are learning about our customers and operations during the pandemic. This has clarified our investment priorities and has led to a re-focus of our support centre functions, to ensure we maximise the opportunities ahead. We will provide more detail on these initiatives at the results in September.

Comment from Nick Wilkinson, Dunelm's Chief Executive Officer: 

"We are incredibly proud of how our team and committed supplier partners have responded during the pandemic and of what we have achieved together. Our colleagues have demonstrated exceptional commitment, agility and resilience to adapt our proposition and operations and I would personally like to thank them all.

"The decisions we have made over the last few months have been guided by our principles and values and we are emerging from this unprecedented period as a stronger business. This has given us the confidence to accelerate our digital transition and introduce new ways of serving our customers. There is lots more to do and we are energised to evolve our customer proposition and operations at pace, as we continue to navigate an uncertain external environment."

For further information please contact:

Next scheduled event:

Dunelm will make its preliminary results announcement on 10 September 2020. 

Notes

Quarterly sales analysis:

3 LFL stores: stores trading for at least one full financial year prior to 30 June 2019 without any change of space. LFL store revenues include Click & Collect/ Reserve & Collect sales and Home Delivery sales in respect of orders placed via in-store tablets.

4 Total LFL: LFL stores and dunelm.com.

5 Q1 FY19 included Worldstores businesses in the total Group.

Notes to Editors

Dunelm was founded in 1979 as a market stall business, selling ready-made curtains. The first shop was opened in Leicester in 1984 and over the following years the business developed into a successful chain of high street shops before expanding, following the opening of the first Dunelm superstore in 1991, into broader homewares categories. Dunelm is now a multi-channel retailer, with dunelm.com being launched in 2005.

Dunelm is market leader in the £13bn UK homewares market and active in the £11bn UK furniture market. It currently operates 173 stores, of which the majority are out of town, and trades online through dunelm.com. Dunelm employs approximately 10,000 colleagues and sells around 30,000 product lines in store, increasing to around 55,000 online.

Dunelm, "The Home of Homes", offers a customer proposition of style, value, quality and ease of shopping. From its textiles heritage, in areas such as bedding, curtains, cushions, quilts and pillows, Dunelm has broadened its product range to a complete homewares offer including the likes of kitchenware, dining, lighting, seasonal, wall art and rugs. Dunelm is one of the few national retailers to offer an authoritative selection of curtain fabrics on the roll and owns a specialist UK facility dedicated to producing made-to-measure curtains and blinds.

The product range includes many exclusive, own brand designs and owned premium brands such as Dorma and Fogarty. This is augmented by a range of other well-known brands and licence agreements.

Dunelm has been listed on the London Stock Exchange since October 2006 (DNLM.L) and has a current market capitalisation of approximately £2.3bn.