UBS lowers price target on Dunelm following 'cautious' outlook

Analysts at UBS lowered their target price on British home furnishings retailer Dunelm on Monday, noting that management had sounded a note of caution about full year results due to “unprecedented” uncertainty caused by Brexit despite good momentum and softer comparatives.

Dunelm told investors on Monday that it expected interim pre-tax profits to come in around £70m after £3.8m in impairment charges. It reported second quarter revenues of £303m, up 2%.

Total like-for-like revenue growth for the second quarter was 9%.

However, the company also said that, given the "unprecedented levels of uncertainty currently facing consumers and businesses in the UK, we remain cautious about our full year outlook."

UBS highlighted Dunelm's "strong trading" in the second quarter, driven by management's renewed focus on the group's core business and the disappearance of the distraction caused by its worldstores unit after the recently acquired websites had been shut down and rolled into dunelm.com.

With second quarter like-for-like sales up 5.7% and online revenues growing at 38%, UBS reiterated its 'buy' rating on Dunelm but chose to lower its price target from 650p to 600p due to the retailer's cautious outlook.

UBS, which bumped its 2019 pre-tax profit estimates on Dunelm up from £108m to £116m noted that, looking forward, it expects profits to improve "slightly less" as it assumed a "more modest space contribution".