Shares in Dunelm Group PLC (LSE:DNLM) surged 4% to 851.5p after the homewares retailer confirmed full-year profit will meet expectations following a strong fourth quarter.
The company reported sales growth of 2.9% in the 13 weeks to 27 June, with revenues reaching £428 million despite headwinds from unusually warm weather.
Two separate weeks of exceptionally warm weather dented store footfall during the quarter, complicating an otherwise solid trading period for the business.
One of those hot spells coincided with the opening week of Dunelm’s Summer Sale, which disproportionately hit trading at a critical promotional moment.
Full-year sales climbed 3.1% to £1,825 million, with pre-tax profit expected to match consensus forecasts of around £210 million for the period.
New chief executive Clo Moriarty, who took charge last year, signalled ambitions to push the business significantly further than its current trajectory suggests.
Moriarty said Dunelm’s best growth opportunities were still in front of it as market leader in a large and highly fragmented sector, adding that she was excited by what comes next.
A formal strategic update will be delivered alongside full-year results on 8 September, giving investors a detailed look at her vision for the retailer.
Digital sales accounted for 45% of total sales in the fourth quarter, up 3 percentage points year-on-year, supported by the successful launch of the company’s dedicated app.
Shortly after the year-end, Dunelm launched a trial of an AI-powered shopping assistant within the app, using conversational commerce to help customers discover products.
Gross margin for the year edged up 10 basis points to 52.5%, as currency tailwinds were partly offset by customers increasingly shopping during promotional events.
The retailer opened a 34,000 sq ft superstore in Kingston-upon-Thames in the final week of the financial year, with further openings expected toward the upper end of its five to ten new superstores annual guidance.
Cash generation remained strong, with around 70% of operating profit converted to free cash and a small net cash inflow recorded after dividend payments of £141 million.
Broker Peel Hunt, which rates the stock ‘buy’ up to 1,225p, said: “New CEO Clo Moriarty is set to deliver a strategy update in September (the final results will be dealt with by recorded video, followed by an in-person strategy event).”
Peel Hunt added: “With a lot going on under the hood, we expect Dunelm’s medium-term performance to far outstrip current three-year forecasts, including our own.”
The broker noted that on a price-to-earnings multiple of 10 times, the shares remain cheap, offering a 9% free cash flow yield, “and have the potential to respond well to September’s direction.”
Not all analysts share that optimism, however, with Panmure Liberum maintaining its ‘sell’ rating and a 830p price target on the stock.
