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Dunelm profit rises but retailer strikes cautious note on outlook
4th Sep 2019 07:41
(Sharecast News) - Homeware retailer Dunelm defied the high street gloom on Wednesday as it reported a jump in full-year profit and announced a special dividend but struck a cautious note on the outlook amid Brexit-related uncertainty.
In the year to 29 June, pre-tax profit shot up 23.5% to £125.9m on revenue of £1.1bn, up 4.8% on the same period a year ago. Dunelm, which had guided to pre-tax profit of £124m to £126m, said its performance reflected higher sales, improved gross margins and better operational grip.
Gross margins improved by 160 basis points to 49.6%. Dunelm attributed this to improved sourcing, FX gains, the elimination of Worldstores product lines with lower margins, and better end of season stock management.
Total like-for-like sales were up 10.7% during the year, with sales in stores up 7.7% and online up 35.1%.
Basic earnings per share rose 25.2% to 50.2p and the company declared a final dividend of 20.5p a year, taking the full-year dividend to 28p, up 5.7%. It also declared a special dividend of 32p, taking the total shareholder dividend for the year to 60p.
Chief executive officer Nick Wilkinson said there had been an improvement across all its customer, operating and financial metrics.
"In particular, the strong like-for-like revenue growth, both in stores and online, demonstrates the progress we are making with our multichannel proposition whilst maintaining the breadth and depth of our specialist customer offer in homewares," he said.
"These results reflect our focus on the core Dunelm business and we see further opportunities to develop our Customer 1st plans, through extending product choice and value, improving our customer experience enabled by technology, and bringing more people to the brand."
Wilkinson said recent trading has remained strong, reflecting weak comparatives in the previous year and continued market share growth. However, he sounded a cautious note on the outlook for FY20, citing increased Brexit uncertainty and its impact on consumer spending as the group enters its peak period.
At 0825 BST, the shares were up 2.2% at 900p.
RBC Capital Markets analyst Richard Chamberlain said: "Dunelm has made an effort to refocus its offer on the core, resulting in a consistent core performance over the past year following the Worldstores acquisition. Despite this, we still have reservations regarding Dunelm's medium-term sales target of £2bn and think it will be challenging to achieve this without sacrificing margin. Dunelm currently trades at circa 17x FY20 price-to-earings, near the top of its historic range of 12-20x.
"We would prefer to buy B&M which was hit yesterday on concerns about a reduction in UK sales densities over the past 5-6 years, however we believe sales densities have remained stable, excluding lower rent garden sales and space. This has allowed B&M to maintain a healthy EBITDA margin of over 10%."
Shore Capital said: "The brand has a market leading position in the fragmented homewares market. Dunelm is a quality operator focused on its consumer proposition and the strong FY19 results reflect this. The stand out for us, is the special dividend of 32.0p to be paid in October, reflecting the board's confidence and the cash generation in the business."
In the year to 29 June, pre-tax profit shot up 23.5% to £125.9m on revenue of £1.1bn, up 4.8% on the same period a year ago. Dunelm, which had guided to pre-tax profit of £124m to £126m, said its performance reflected higher sales, improved gross margins and better operational grip.
Gross margins improved by 160 basis points to 49.6%. Dunelm attributed this to improved sourcing, FX gains, the elimination of Worldstores product lines with lower margins, and better end of season stock management.
Total like-for-like sales were up 10.7% during the year, with sales in stores up 7.7% and online up 35.1%.
Basic earnings per share rose 25.2% to 50.2p and the company declared a final dividend of 20.5p a year, taking the full-year dividend to 28p, up 5.7%. It also declared a special dividend of 32p, taking the total shareholder dividend for the year to 60p.
Chief executive officer Nick Wilkinson said there had been an improvement across all its customer, operating and financial metrics.
"In particular, the strong like-for-like revenue growth, both in stores and online, demonstrates the progress we are making with our multichannel proposition whilst maintaining the breadth and depth of our specialist customer offer in homewares," he said.
"These results reflect our focus on the core Dunelm business and we see further opportunities to develop our Customer 1st plans, through extending product choice and value, improving our customer experience enabled by technology, and bringing more people to the brand."
Wilkinson said recent trading has remained strong, reflecting weak comparatives in the previous year and continued market share growth. However, he sounded a cautious note on the outlook for FY20, citing increased Brexit uncertainty and its impact on consumer spending as the group enters its peak period.
At 0825 BST, the shares were up 2.2% at 900p.
RBC Capital Markets analyst Richard Chamberlain said: "Dunelm has made an effort to refocus its offer on the core, resulting in a consistent core performance over the past year following the Worldstores acquisition. Despite this, we still have reservations regarding Dunelm's medium-term sales target of £2bn and think it will be challenging to achieve this without sacrificing margin. Dunelm currently trades at circa 17x FY20 price-to-earings, near the top of its historic range of 12-20x.
"We would prefer to buy B&M which was hit yesterday on concerns about a reduction in UK sales densities over the past 5-6 years, however we believe sales densities have remained stable, excluding lower rent garden sales and space. This has allowed B&M to maintain a healthy EBITDA margin of over 10%."
Shore Capital said: "The brand has a market leading position in the fragmented homewares market. Dunelm is a quality operator focused on its consumer proposition and the strong FY19 results reflect this. The stand out for us, is the special dividend of 32.0p to be paid in October, reflecting the board's confidence and the cash generation in the business."