20th Sep 2023 15:34
(Alliance News) - Analysts looked ahead to Dunelm Group PLC's future with confidence on Wednesday, despite inflationary pressure keeping a lid on the home furnishings retailer's annual profit.
But investors were not as reassured. Its shares fell 4.4% to 1,035.90 pence each in London on Wednesday afternoon.
Dunelm said that in the financial year ended July 1, pretax profit declined 9.4% to GBP192.7 million from GBP212.8 million. This was slightly better than Peel Hunt's upgraded forecast of GBP189 million.
The FTSE 250 listing's annual revenue, however, climbed 3.6% to GBP1.64 billion from GBP1.58 billion.
The previous financial year had an extra week, Dunelm noted. On a 52-week basis, revenue was 5.5% higher, while pretax profit was down 7.8%.
Dunelm lifted its final dividend by 3.8% to 27 pence per share from 26p. Its total ordinary dividend for the year was 5.0% higher at 42p from 40p. It had also paid a special dividend of 40p for the financial year, up 8.1% from 37p the year prior.
"In a period of extensive economic uncertainty, we have maintained our focus on enhancing our customer proposition, expanding our offer whilst staying fully committed to value and making every pound count," Chief Executive Officer Nick Wilkinson said.
"This has clearly resonated well with our customers, enabling us to continue growing both sales and market share. As ever, our amazing colleagues have been at the heart of this performance and I thank them all for their knowledge, personality, commitment and enthusiasm.
"As we manage the ongoing challenges, it is crucial that we do not lose sight of our longer-term ambitions. We are committed to raising the bar on value and joy for our customers and continuing to invest where we see good returns, so that we can seize the various opportunities ahead."
Dunelm said it has "never been more confident" in its short, medium and long-term opportunities.
AJ Bell's Russ Mould said: "Although profits and margins fell in the full-year period, management remain upbeat about the company's prospects. As far as investors are concerned, the future is more important than the past.
"Cost pressures are easing in parts of the business and the company continues to find new ways to launch value-for-money products. It is even lowering prices on certain products as input costs fall - that is a sign of a company which cares more about the customer than simply making as much money as possible."
He added that "the demise" of Wilkinsons presents an opportunity for Dunelm to increase market share in home decor, selling affordable mirrors, picture frames and plant pots. "If it can lure former Wilko customers into its stores, there is a good chance it can tempt them to buy other products, and then become fully-fledged Dunelm converts."
The company said that although consumer behaviour "remains unpredictable" it expects volumes to drive sales and pretax profit growth in the new financial year. It said it is pleased with early trading so far in the new year.
Mould explained that it is important that the company believes profit growth will be driven by selling higher volumes of products. "Many companies are growing earnings simply by jacking prices up, but that is a risky strategy as customers will get to a certain price point before looking elsewhere for a cheaper option," he added.
Meanwhile Neil Shah, director at Edison Group said: "The retailer's proactive stance in passing on cost reductions and expanding into new areas, such as nursery furniture and live plants, while staying laser-focused on value, is commendable."
Shah added that "While current market dynamics may remain capricious, Dunelm's roadmap paints a promising picture for [financial 2024]."
"Dunelm is a standout performer in the Retail sector, with strong growth potential driven by an own-brand focus, direct sourcing and strategic store rollouts," said Shore Capital's Eleonora Dani & Clive Black.
"In our view, though, this is one to keep on the watch list – with a solid balance sheet and consistent earnings growth, Dunelm is well-positioned to capitalise on changing consumer trends."
By Sophie Rose, Alliance News reporter
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