Last checked at 26 Feb 2009 07:00
26 February 2009
Dunelm Group plc
Interim Results Announcement
Dunelm Group plc, the leading out-of-town specialist homewares retailer, announces its Interim Results for the 26 weeks to 27 December 2008.
Financial Highlights
Sales up 2.3% to £201.8m (2007: £197.4m)
Like-for-like sales decline of 5.6%
Gross margin up 100 basis points to 45.9% (2007: 44.9%)
Operating profit decline of 5.4% to £26.1m (2007: £27.6m)
Profit before taxation up by 0.2% to £27.3m (2007: £27.2m)
Earnings per share (fully diluted) up 3.3% to 9.5p (2007: 9.2p)
Strong cash generation from operations of £48.1m (2007: £39.7m)
Interim dividend maintained at 2.0p per share
Business Highlights
Continued market share growth;
Results achieved without recourse to unplanned discounting;
Operating margin remains robust at 12.9%;
3 new superstores opened in the period, with 3 further units anticipated this financial year;
Very strong pipeline for next financial year, with leases already signed on 7 locations;
On-line store further developed, with over 11,000 products now available;
Sales for 8 weeks to 21 February up 8.9% (up 4.4% on like-for-like basis) with margin gains maintained.
Commenting, Will Adderley, Chief Executive of Dunelm, said:
"In a significantly declining market for homewares, our first half performance was a satisfactory result and we continued to gain market share. 'Simply value for money' has been Dunelm's philosophy for many years and we believe that is more appealing than ever in today's environment.
"Despite the recessionary background our recent winter sale was very successful, contributing to strong like-for-like sales growth in the first eight weeks of the second half.
"Over the coming months we expect to see continuing tough trading conditions. However, as a debt-free and cash generative business, Dunelm is well placed to trade successfully through an extended downturn. The value we offer to our customers remains very strong and we are in excellent shape to continue to outperform the competition. Importantly, we are well placed to continue with our new store rollout programme as the market for out of town retail space moves further in our favour."
For further information please contact:
| Dunelm Group plc | 0116 2644 356 |
| Will Adderley, Chief Executive | |
| David Stead, Finance Director | |
| Hogarth Partnership | 020 7357 9477 |
| John Olsen | |
| Fiona Noblet | |
| Simon Hockridge |
Notes to Editors
Dunelm is amongst the top 10 retailers operating in the £12bn UK homewares market. The Group has 92 stores, branded Dunelm Mill, of which 79 are out-of-town superstores. Dunelm employs over 5,000 full and part time staff.
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 in the Midlands specialising in soft furnishings. The first Dunelm superstore was opened in 1991, leading to the Company's move into the broader homewares market.
The superstores provide an average of 28,000 sq ft of selling space and offer an extensive range of over 20,000 products across a broad spectrum of categories, including bedding, curtains, gifts and seasonal items, cushions, bathroom products, kitchenware, quilts, pillows and rugs. Dunelm also specialises in offering a wide range of fabrics, made to measure curtains and a frequently changing series of special buys. The directors are passionate about ensuring that all ranges live up to Dunelm's philosophy of offering customers "Simply Value for Money".
Dunelm also has an on-line store (www.dunelm-mill.com) with over 11,000 products available.
Dunelm is listed on the London Stock Exchange (DNLM.L).
Chairman's Statement
Dunelm has posted very solid results for the 26 weeks to 27 December 2008, despite the impact of the credit crunch on the homewares market. The market declined significantly in the second half of 2008, and against this background we believe that our like-for-like (LFL) sales performance of -5.6% was a satisfactory result and that we continued to gain market share. Taking into account the continued roll-out of the Dunelm format to new locations, overall sales growth was 2.3%. Equally importantly, these sales results were achieved without unplanned discounting, so that gross margin was increased and the business remained strongly profitable.
This is an exciting time for Dunelm and its ambitious management team. Whilst the recession will undoubtedly bring some difficult trading challenges, it also offers the opportunity for strong companies to grow market share. As a debt-free and cash generative business, Dunelm is well placed to trade successfully through an extended downturn; we will also take advantage of increased availability of new sites to continue the roll-out of our successful out of town trading format. We approach the future with confidence and enthusiasm.
Geoff Cooper
Chairman
26 February 2009
Chief Executive's review
Overview
'Simply value for money' has been the Dunelm motto for many years, and in today's market it is a philosophy which we believe is more appealing than ever. It reflects our desire always to give customers good value, which we think is vital at any time, but especially so in a difficult economic climate. It also reflects our determination to work with product suppliers who are equally committed to offering value, and I am delighted that many of our long-standing suppliers continue to work with us and to help us to deliver for our customers.
However, 'good value' does not necessarily mean 'cheap'. We continue to offer great quality and great choice at a wide range of price points in all the categories we sell, and we firmly believe that customers appreciate the ability to trade either up or down within our stores. The depth of our ranges remains an essential part of our appeal and a key competitive advantage for us.
Financial performance
During the period, sales grew by 2.3% to £201.8m (2007: £197.4m). LFL sales declined by 5.6%, driven largely by a reduction in the average transaction value. We did not engage in any unplanned discounting during the period.
Product gross margin increased by 100 basis points. This was largely due to us giving greater prominence to 'special buy' merchandise - we take a higher gross margin on such lines to offset increased internal costs in sourcing and logistics.
As we have begun to exploit the information available to us following our systems investments in recent years, our ability to identify and clear discontinued stock has become substantially better. As a result, we avoided any charge for obsolete stock in our half year accounts (2007: £3.0m) and ended the period with a better stock profile than at any time in the recent past.
This strong gross margin performance and improved stock clearance, allied to continuing tight cost control, allowed us to restrict the fall in operating profit for the period to 5.4%, giving a result of £26.1m (2007: £27.6m). We consider this a satisfactory result in view of the LFL sales decline. Our operating margin remained strong at 12.9% (2007: 14.0%).
Financial items had a positive effect on our profit before tax, as a result of two factors: reduced borrowings (an average of just £0.1m net borrowing over the period); and gains on US dollar holdings, which amounted to $7.0m at the start of the period and $7.0m at the end. With the benefit of these factors profit before tax came in virtually unchanged from last year at £27.3m.
Profit after tax rose by 2.7% to £19.2m (2007: £18.7m), reflecting the projected full year effective tax rate of 29.8%.
Fully diluted earnings per share were 9.5p, an increase of 3.3% against last year.
Cash generated from operations was £52.5m (2007: £47.1m). Stock levels increased by £10.2m during the period reflecting additional stores as well as higher central stocks to support the increased proportion of special buy merchandise in the business. Creditors increased by £31.4m. We made capital investments of £11.4m during the period (2007: £13.1m), including the acquisition of rights to the Dorma brand for a consideration of £5.0m.
We ended the period with our balance sheet showing net cash of £23.4m. The positive net cash balance as at 27 December is not representative of the period as a whole, but our average daily net debt position was just £0.1m (2007: £7.8m). We are therefore in a very strong financial position with no gearing and available facilities of up to £50m.
An interim dividend of 2.0p per share (2007: 2.0p) will be paid on 1 May to shareholders on the register at 8 April.
New store openings
During the period we opened new superstores in Huddersfield, Newtownabbey and Plymouth. We therefore ended the period with 92 stores, of which 79 are out of town superstores. We will shortly be opening our next store, in Worcester, where we will be relocating our existing high street business.
We remain committed to our target of extending the chain to at least 150 superstores across the UK. With the demise of a number of retailers operating from out of town parks, we believe that we are in an increasingly strong position to be able to secure new sites on acceptable terms. At present there are ten new locations, including Worcester, for which leases have been signed.
Specialist offer
We continue to develop our customer offer in a number of ways.
First, we are beginning to exploit the Dorma brand which we acquired last summer. This is a highly credible, upmarket bed linen brand which holds the Royal Warrant for HM The Queen and HRH The Prince of Wales. In our most recently opened store, in Plymouth, we have created a dedicated Dorma zone within the store to showcase Dorma bed linen. Looking ahead we will consider applying the brand to other appropriate areas of our inventory such as kitchen and bathroom textiles.
Second, we have introduced a number of other innovations which are being trialled in our Plymouth store. These include a refined fabrics offer as part of a new layout which brings together all aspects of window treatments; two new categories (laundry and crafts); and an in-store web kiosk. We will keep the performance of these developments under review but currently plan to include them in all new stores going forward.
Third, we have continued our programme of store refits, with a total of five refits completed by the autumn and three more planned for early in 2009. As previously stated, the cost of a typical refit is a little under £0.5m. We are satisfied with the performance of refitted stores and intend to continue our refit programme at the rate of 5-10 stores per year.
Dunelm Direct
Our online offering has continued to develop and we now offer over 11,000 lines for purchase via www.dunelm-mill.com. Sales have continued to grow rapidly and our webstore now has takings equivalent to an average superstore. We intend to upgrade our technology platform and to relaunch the site with improved functionality later in 2009.
Infrastructure
Our warehouse facility at Stoke had to deal with substantially increased volumes in 2008, partly due to the number of new stores opened but also because of the increasing emphasis we have placed on promotional merchandise (which is generally distributed to stores via our own warehouse). The warehouse has handled this challenge successfully and has provided a high level of service to stores.
Principal risks
The main strategic, operational and financial risks facing the Group were set out on pages 8 and 9 of the Annual Report dated 11 September 2008. The Board has not identified any further key risks to the business since that date.
Outlook
Despite the recessionary background, we had a very successful winter sale, most of which fell after the period end. As a result, sales for the eight weeks to 21 February were up by 8.9%, and by 4.4% on a like-for-like basis despite disruption caused by the snow in the first part of February.
Gross margin has continued to be resilient over the same period, showing a year on year increase of 100 basis points. Over the coming months we expect to see continuing tough trading conditions, subdued consumer spending and the impact of weaker sterling feeding through into cost of goods. However, I believe our retail proposition remains very strong and that the business is in excellent shape to continue to outperform the competition during this period of recession. Importantly, we are continuing to lay the foundations for future growth by continuing with our new store rollout programme as the market for out of town retail space moves further in our favour.
Will Adderley
Chief Executive
26 February 2009
Consolidated income statement (unaudited)
For the 26 weeks ended 27 December 2008
| 26 weeks | 26 weeks | 52 weeks | ||
| ended | ended | ended | ||
| 27 December | 29 December | 28 June | ||
| 2008 | 2007 | 2008 | ||
| Notes | £'000 | £'000 | £'000 | |
| Revenue | 201,814 | 197,361 | 391,795 | |
| Cost of sales | (109,039) | (108,617) | (217,018) | |
| Gross profit | 92,775 | 88,744 | 174,777 | |
| Operating costs | (66,681) | (61,163) | (125,346) | |
| Operating profit | 26,094 | 27,581 | 49,431 | |
| Financial income | 1,877 | 608 | 1,075 | |
| Financial expenses | (686) | (965) | (1,365) | |
| Profit before taxation | 27,285 | 27,224 | 49,141 | |
| Taxation | 4 | (8,131) | (8,574) | (15,470) |
| Profit for the period | 19,154 | 18,650 | 33,671 | |
| Earnings per share - basic | 5 | 9.6p | 9.3p | 16.8p |
| Earnings per share - diluted | 5 | 9.5p | 9.2p | 16.6p |
| Dividend proposed per share | 6 | 2.0p | 2.0p | 3.5p |
| Dividend paid per share | 3.5p | 3.0p | 2.0p | |
All activities relate to continuing operations. All profit is attributable to equity shareholders.
Consolidated balance sheet (unaudited)
As at 27 December 2008
| 27 December | 29 December | 28 June | |
| 2008 | 2007 | 2008 | |
| £'000 | £'000 | £'000 | |
| Non-current assets | |||
| Intangible assets | 5,663 | 2,720 | 2,097 |
| Property, plant and equipment | 79,312 | 76,272 | 77,157 |
| Deferred tax asset | - | 1,390 | - |
| Total non-current assets | 84,975 | 80,382 | 79,254 |
| Current assets | |||
| Inventories | 70,910 | 59,775 | 60,710 |
| Trade and other receivables | 12,781 | 12,494 | 11,636 |
| Cash and cash equivalents | 32,453 | 18,209 | 2,853 |
| Total current assets | 116,144 | 90,478 | 75,199 |
| Total assets | 201,119 | 170,860 | 154,453 |
| Current liabilities | |||
| Trade and other payables | (85,855) | (68,635) | (54,570) |
| Liability for current tax | (8,223) | (6,073) | (3,840) |
| Interest-bearing loans and borrowings | (20) | - | (20) |
| Total current liabilities | (94,098) | (74,708) | (58,430) |
| Non-current liabilities | |||
| Deferred tax liability | (277) | - | (634) |
| Interest-bearing loans and borrowings | (9,000) | (20,000) | (10,000) |
| Total non-current liabilities | (9,277) | (20,000) | (10,634) |
| Total liabilities | (103,375) | (94,708) | (69,064) |
| Net assets | 97,744 | 76,152 | 85,389 |
| Equity | |||
| Issued capital | 2,008 | 2,008 | 2,008 |
| Share premium | 345 | 346 | 345 |
| Retained earnings | 95,391 | 73,798 | 83,036 |
| Total equity attributable to equity holders of the parent | 97,744 | 76,152 | 85,389 |
Consolidated cash flow statement (unaudited)
For the 26 weeks ended 27 December 2008
| 26 weeks | 26 weeks | 52 weeks | |
| ended | ended | ended | |
| 27 December | 29 December | 28 June | |
| 2008 | 2007 | 2008 | |
| £'000 | £'000 | £'000 | |
| Cash flows from operating activities | |||
| Profit before taxation | 27,285 | 27,224 | 49,141 |
| Adjusted for: | |||
| Net financing costs | (1,191) | 357 | 290 |
| Depreciation and amortisation | 5,644 | 4,760 | 9,457 |
| (Profit) on disposal of property, plant and equipment | - | (258) | (278) |
| Operating cash flows before movement in working capital | 31,738 | 32,083 | 58,610 |
| (Increase)/decrease in inventories | (10,200) | 882 | (53) |
| (Increase) in trade and other receivables | (1,145) | (3,498) | (2,640) |
| Increase in trade and other payables | 31,391 | 17,333 | 3,460 |
| Net movements in working capital | 20,046 | 4,717 | 767 |
| Increase in provisions | - | 61 | - |
| Share based payment expense | 313 | 268 | 286 |
| Foreign exchange gains/(losses) | 440 | (20) | (49) |
| Cash flows from operating activities | 52,537 | 47,109 | 59,614 |
| Interest paid | (793) | (1,099) | (1,642) |
| Interest received | 442 | 608 | 1,075 |
| Tax paid | (4,100) | (6,935) | (14,093) |
| Net cash generated from operating activities | 48,086 | 39,683 | 44,954 |
| Cash flows from investing activities | |||
| Proceeds on disposal of property, plant and equipment | - | 301 | 303 |
| Acquisition of property, plant and equipment | (6,098) | (13,063) | (17,466) |
| Acquisition of intangible assets | (5,268) | - | (538) |
| Net cash utilised in investing activities | (11,366) | (12,762) | (17,701) |
| Cash flows from financing activities | |||
| Proceeds from the issue of share capital | - | 80 | 80 |
| Purchase of treasury shares | (186) | (47) | (1,900) |
| Proceeds from issue of treasury shares | 64 | - | 112 |
| Net repayment of bank loan | (1,000) | (20,000) | (30,000) |
| Dividends paid | (6,994) | (6,024) | (10,020) |
| Net cash utilised in financing activities | (8,116) | (25,991) | (41,728) |
| Net increase/(decrease) in cash and cash equivalents | 28,604 | 930 | (14,475) |
| Foreign exchange revaluations | 996 | (68) | (39) |
| Cash and cash equivalents at the beginning of the period | 2,833 | 17,347 | 17,347 |
| Cash and cash equivalents at the end of the period | 32,433 | 18,209 | 2,833 |
Statement of changes in equity (unaudited)
For the 26 weeks ended 27 December 2008
| Share | Share | Retained | Total | |
| Capital | premium | earnings | Equity | |
| £'000 | £'000 | £'000 | £'000 | |
| As at 1 July 2007 | 2,006 | 267 | 60,961 | 63,234 |
| Profit for the period | - | - | 18,650 | 18,650 |
| Issue of share capital | 2 | 79 | - | 81 |
| Purchase of treasury shares | - | - | (47) | (47) |
| Share based payments | - | - | 268 | 268 |
| Deferred tax on share based payments | - | - | (50) | (50) |
| Corporation tax on share options exercised | - | - | 40 | 40 |
| Dividends | - | - | (6,024) | (6,024) |
| As at 29 December 2007 | 2,008 | 346 | 73,798 | 76,152 |
| Profit for the period | - | - | 15,021 | 15,021 |
| Issue of share capital | (1) | - | (1) | |
| Purchase of treasury shares | - | - | (1,853) | (1,853) |
| Treasury shares reissued in respect of share option schemes | - | - | 112 | 112 |
| Share based payments | - | - | 18 | 18 |
| Deferred tax on share based payments | - | - | (180) | (180) |
| Current corporation tax on share options exercised | - | 116 | 116 | |
| Dividends | - | - | (3,996) | (3,996) |
| As at 28 June 2008 | 2,008 | 345 | 83,036 | 85,389 |
| Profit for the period | - | - | 19,154 | 19,154 |
| Purchase of treasury shares | - | - | (186) | (186) |
| Treasury shares reissued in respect of share option schemes | - | - | 64 | 64 |
| Share based payments | - | - | 313 | 313 |
| Deferred tax on share based payments | - | - | 4 | 4 |
| Dividends | - | - | (6,994) | (6,994) |
| As at 27 December 2008 | 2,008 | 345 | 95,391 | 97,744 |
Notes to the interim results
1 Basis of preparation
The condensed financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards and in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting.
The presentation of the condensed financial statements requires the directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experiences and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
2 Accounting policies
The condensed financial statements have been prepared under the historical cost convention, except for share-based payments which are stated at their fair value. The accounting policies adopted are consistent with those of the annual financial statements for the year ended 28 June 2008, as described in those financial statements.
3 Segmental reporting
The Group has only one class of business, retail, and operates entirely in the UK market.
4 Taxation
The taxation charge for the interim period has been calculated on the basis of the estimated effective tax rate for the full year of 29.8% (26 weeks ended 29 December 2007: 31.5%).
5 Earnings per share
Basic earnings per share is calculated by dividing the profit for the period attributable to equity shareholders by the weighted average number of ordinary shares in issue during the period.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. These represent share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period.
Weighted average numbers of shares:
| 26 weeks | 26 weeks | 52 weeks | |
| ended | ended | ended | |
| 27 December | 29 December | 28 June | |
| 2008 | 2007 | 2008 | |
| £'000 | £'000 | £'000 | |
| Weighted average number of shares in issue during the period | 199,841 | 200,688 | 200,446 |
| Impact of share options | 1,894 | 2,812 | 2,180 |
| Number of shares for diluted earnings per share | 201,735 | 203,500 | 202,626 |
6 Dividends
| 26 weeks | 26 weeks | 52 weeks | |
| ended | ended | ended | |
| 27 December | 29 December | 28 June | |
| 2008 | 2007 | 2008 | |
| £'000 | £'000 | £'000 | |
| Final for the period ended 30 June 2007 - paid 3.0p | - | (6,024) | (6,024) |
| Interim for the period ended 28 June 2008 - paid 2.0p | - | - | (3,996) |
| Final for the period ended 28 June 2008 - paid 3.5p | (6,994) | - | - |
| (6,994) | (6,024) | (10,020) | |
The directors are proposing an interim dividend of 2.0p per ordinary share for the period ended 27 December 2008 which equates to £4.0m. The dividend will be paid on 1 May 2009 to shareholders on the register at the close of business on 8 April 2009.
7 Announcement
The interim report was approved by the Board on 25 February 2009 and copies are available from the registered office at Fosse Way, Syston, Leicester, LE7 1NF or from the website at www.dunelm-mill.com.