15th Feb 2023 11:05
(Alliance News) - Dunelm Group PLC on Wednesday backed its full-year guidance, despite reporting a 17% drop in profit.
Russ Mould, investment director at AJ Bell, said the drop-off in first-half profit at Dunelm wasn't causing undue alarm, however, with the stock up 0.3% at 1,172.00 pence on Wednesday morning in London.
"The impact of inflationary pressures was hardly an unknown for investors and the company was competing with strong post-Covid trading as well as being affected by the timing of its big sale," Mould explained.
In the six months ended December 31, Dunelm reported pretax profit fell by 17% to GBP117.4 million from GBP140.8 million.
Dunelm said this fall was expected, reflecting impact of sale timing and strong post-pandemic demand in the prior year, as well as inflationary impacts.
Analysts at Peel Hunt said they had expected a "'normalisation' in the first half profit split post-Covid" for Dunelm, forecasting a pretax profit of GBP108 million. The fact the actual outcome was stronger was "largely thanks to the beneficial timing of the sale," according to Peel Hunt.
"More importantly" for AJ Bell's Russ Mould, Dunelm delivered meaningful sales growth during the period, which he suggested means it is "picking up market share from struggling rivals.
The soft furnishings retailer posted a 5.0% increase in total sales to GBP835.0 million from GBP795.6 million a year ago. It noted that digital sales made up 34% of total sales.
"Its products are affordable, but not so low quality as to prove a false economy. In recent years it has sorted out the digital side of its business – just in the nick of time before the pandemic hit as it turned out," said Mould.
"Undoubtedly, the consumer backdrop is challenging, but Dunelm's strengths should help cushion any cost-of-living blow."
Looking ahead, Dunelm reiterated its full-year guidance, saying that it is on track to deliver full-year results in line with analyst expectations.
The current company compiled consensus average of analysts' expectations for financial year 2023 pretax profit is GBP176 million, with a range of GBP131 million to GBP188 million.
Pretax profit in financial year 2022 came in at GBP212.8 million.
The company did, however, note that the outlook remains "unpredictable" as consumers are still adapting to the new economic reality.
Chief Executive Officer Nick Wilkinson said: "Much like during the pandemic, our customers, colleagues and the communities we operate in will remember how businesses behaved when times were tough, and we are confident that our approach of offering outstanding value and choice for all will enable us to - once again - emerge from this challenging period stronger than ever."
Peel Hunt said that while forecasts remain unchanged given "consumer uncertainty", it sees more "upside than downside risk" for Dunelm.
"Medium-term growth prospects remain compelling, in our view, as do shareholder returns," it said, placing Dunelm at 'buy'.
By Heather Rydings, Alliance News senior economics reporter
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