Dunelm sees annual profit 'significantly' ahead of market views
Homeware retailer Dunelm said on Wednesday that annual pre-tax profit is set to be "significantly" ahead of analysts’ expectations following a strong performance in the five weeks since reopening.
In an update on trading for the first seven weeks of the fourth quarter, the company said total sales rose 59% on a two-year basis, against the equivalent period in FY19.
Sales growth has been "very strong" since the majority of its stores re-opened on 12 April, Dunelm said, pointing to continued good digital growth from its home delivery and Click & Collect channels.
"This high sales growth reflects the strength of our customer proposition and a variety of other factors including pent-up demand following the extended store closure period, a buoyant homewares market and some benefit from the unseasonably cold Spring weather," it said. "In the five weeks since our stores re-opened, we have performed significantly ahead of the market."
As a result, FY21 pre-tax profit is set to be in excess of £148m, versus market expectations of between £128m and £134m.
At 1240 BST, the shares were up 4.7% at 1,529p.
Broker Peel Hunt, which rates the stock at 'buy', lifted its price target to 1,750p from 1,600p after the update.
"We upgrade FY21E profit before tax by circa 15% to £149m, and FY22E circa 4% to £162m," it said. "Trading conditions are clearly favourable, but Dunelm continues to outperform materially, growing its active customer base and existing customer spending levels.
"Ultimately, Dunelm pays out all free cash flow to shareholders through ordinary and special dividends, a calculation which points to total dividends of £450m+ being declared by September 2023E, a circa 15% return over the next 28 months."
Russ Mould, investment director at AJ Bell, said joins a growing list of retailers to say that earnings are better than expected.
"The reopening of shops follow lockdown appears to have gone very well for a lot of retailers thanks to pent-up demand. Dunelm is certainly among them, but one must heed to a warning from fashion seller Next that recent trading patterns are unlikely to be indicative of the rest of the year. That will apply to the whole retail sector, not just Next.
"Put simply, a lot of us have amassed quite a bit of spare cash during the various lockdowns and we’re ready to go on a spending spree. But once that money is gone, spending levels seem almost certain to ease back.
"In addition to this pent-up demand driving trading in recent weeks, Dunelm will have also benefited from a poor bout of weather. Bored at home, but with more freedom to get out, consumers are likely to have ventured to shops with good parking spots just to pass the time. Dunelm is often located on retail parks where parking is plentiful.
"The surge in the property market will also play to its strengths. People either moving home or doing up their home will find plenty of reasons to stock up on homewares from Dunelm.
"However, there is an underlying feeling that Dunelm will have to enjoy the sales spike while it lasts, as it can’t go on forever."