Dunelm Group Plc – Q2 trading update

Dunelm Group plc

Second quarter trading update

Dunelm Group plc (“Dunelm” or “the Group”), the UK's leading homewares retailer, reports on trading for the 13-week period ended 25 December 2021.

¹   Digital includes home delivery, Click & Collect (or Reserve & Collect before  October 2019 )   and tablet-based sales in store.

²   2YoY represents performance against the comparable period in FY20.

A record quarter with strong performance across all channels

Total sales of £407m in the second quarter were up £46m compared to FY21 and £84m compared to FY20. This excellent performance included particularly encouraging growth from our stores. Digital sales have doubled since the pre-Covid Q2 comparative period in FY20, demonstrating the advances we have made in strengthening our total retail offer. With all channels open during this quarter, digital sales penetration returned to a more normalised level of 33%.

Growth was broad based, across nearly all our product categories, with a very strong performance in furniture reflecting better availability and extended ranges. With our stores fully open, our seasonal ranges also performed well.

The data we receive from GfK on a weekly basis shows that we have continued our strong outperformance of the market³ and have gained market share in both homewares and furniture.

³ Based on management's estimates using weekly GfK market data.

Improved gross margin

Gross margin in the second quarter increased by 160bps compared to the same period last year, ahead of our expectations, driven by higher full price sell through of seasonal ranges. The comparative period in Q2 FY21 was impacted by store closures and related stock provisions. For the first half of the financial year, gross margin increased by 80bps, with the positive impact noted above being partially offset by the timing of the Summer Sale in the first quarter.

As a result of the stronger gross margin in the first half, we now estimate that full year gross margin will be better than previously expected, at around 30-50bps lower than FY21, reflecting the impact of reverting back to our historic approach of having two full Sale events during the second half (as compared to one reduced event in H2 FY21).

We continue to expect that we will largely mitigate the impact of inflation on commodity costs and freight rates by working closely with our suppliers to create sourcing benefits, managing the mix of products across our price bands whilst maintaining choice throughout the range, and increasing retail prices where appropriate. As stated previously, we feel that we are relatively well placed to address these challenges whilst continuing to focus on providing great value and quality for our customers.

Strong financial position

At 25 December 2021, the Group had net cash of £48m (FY21 H1: £141m). We announced in the period a new £185m sustainability-linked revolving credit facility (“RCF”), with an initial term of four years. The new RCF incorporates four sustainability-linked performance targets which align to our ambitious sustainability plans including our commitment to pursue a Net Zero Pathway. The facility is currently unutilised.

Inventories as at 25 December 2021 were £204m (FY21 H1: £167m; FY20 H1: £157m). Due to ongoing disruption across the global supply chain, we have continued to build stock levels to ensure we maintain good availability across our ranges. We expect a small further increase in inventory levels in the third quarter.

Strategic update

We continue to invest in our digital fulfilment capacity at pace. During the period we opened our new ecommerce operation in Stoke in partnership with GXO. This new facility will enable us to offer shorter lead times to customers and support our future growth ambitions. The development of our new furniture hub in Northamptonshire is also on schedule; we started to deliver customer orders through this new facility via our in-house home delivery network during the second quarter and expect the site to be fully operational in Q3 FY22. In December we also opened a new superstore in Beverley, East Yorkshire, taking our estate to 176 stores.

We will provide a more detailed update on the exciting developments we are making to our customer proposition as part of our interim results in February.

Summary and outlook

Given the strong sales and margin performance, we expect profit before tax (PBT) for the first half to be approximately £140m (H1 FY21: £112m, H1 FY20: £84m). The improved PBT margin reflects particularly strong store sales during the half.

The macro economic outlook continues to be uncertain but, in the absence of any significant Covid-related disruption, the Board expects that full year FY22 PBT will now be materially ahead of market expectations ⁴ .

⁴ Management understand the range of analysts' estimates for FY22 PBT is £167-£190m, with consensus of £181m.

Nick Wilkinson, Chief Executive Officer, commented:

“We are delighted with our ongoing strong performance, which demonstrates the growing appeal of our homewares offer and includes some standout contributions from our furniture and seasonal categories. I would like to thank our fantastic colleagues and supplier partners for their ongoing commitment to serving our customers in the face of continued Covid challenges and industry-wide supply chain disruption.

“Our integrated physical and digital shopping experience has transformed since we launched our new digital platform in October 2019. These advances have enabled us to reach more customers with our brand and specialist homewares product range, whilst also providing a much improved customer experience. Our digital platform and capabilities also give us more confidence and ambition for the future.

“Whilst there are several macro uncertainties to be navigated, we feel well placed to continue to deliver profitable growth across all channels and grow market share as the 1^st choice for home for UK homelovers.”