14th Sep 2022 20:10
(Alliance News) - Dunelm on Wednesday reported surpassing pre-pandemic annual sales for a second consecutive year and boasted an increase in active customers, but analysts warned that clouds may be on the horizon for the home goods retailer.
In the year ended July 2, pretax profit jumped 35% to GBP212.8 million from GBP157.8 million the previous year.
Sales grew 18% to GBP1.58 billion from GBP1.34 billion the year before. This compares to GBP1.10 billion for financial year 2019.
This comes as active customers grew by 8.5% over the year, with increases across all demographics, Dunelm said.
"Given the uncertain macroeconomic backdrop," said Victoria Scholar at interactive investor, "Dunelm has done well to navigate these headwinds and deliver an impressive 35% surge in pre-tax profit by focusing on efficiency improvements."
"With its attractive low price point product offering, as households substitute away from more expensive items, Dunelm is well positioned to serve the growing number of increasingly price-sensitive customers who may be looking to trade down to cheaper household products including Dunelm's wide range of discounted offers," Scholar continued.
Russ Mould, investment director at AJ Bell, was less optimistic: "Looking in the rear-view mirror Dunelm can only see sunny skies as it reports another record profit. But a glance through the windshield reveals a massive consumer cloud about to break over the business."
Mould said that Dunelm was yet to experience the "heavy shower" which may occur as consumer tighten their belts amid the UK cost-of-living crisis.
"Dunelm can't change the economic weather and it seems likely sales will eventually suffer as people wait a bit longer to replace that duvet set or pair of curtains," Mould concluded.
UBS agreed, explaining that as a retailer Dunelm is exposed to all fluctuations in consumer spending that driven by general economic conditions, household disposable income, consumer confidence and the housing market.
However, it noted that Dunelm had "consistently outperformed the market in both homewares and furniture", and has therefore continued to gain market share.
For ii's Victoria Scholar this showed Dunelm's strength, allowing it to defy broader market declines earlier on Wednesday, though she acknowledged that, in the longer-term, investors have "shunned" UK retail this year amid concerns about the cost-of-living crisis and squeezed household budgets.
With this backdrop, Russ Mould suggested that Dunelm may benefit from market share gains as "smaller and weaker rivals fall by the wayside."
Dunelm Chief Executive Nick Wilkinson was confident: "We feel confident and well prepared to weather the current economic pressures - we emerged from an unprecedented global pandemic as a bigger, better business and we believe we have the tools in place to do that again."
By Heather Rydings; [email protected]
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