Dunelm Group PLC (LSE: DNLM) shares dropped sharply on Tuesday, trading as low as 11% down to 787.5p during morning trade on the London Stock Exchange.
The homewares retailer unveiled a three-year investment strategy that investors reacted to cautiously, with shares ultimately settling on a loss of close to 10% for the session.
Dunelm’s plan targets a return to mid-to-high single-digit annual sales growth, driven by new store openings, refurbishments, range simplification, and stronger customer loyalty programmes.
As part of the transformation, management has identified around £100 million of costs to be removed from the business and reinvested into its growth initiatives.
Despite the ambitious long-term targets, management has guided that adjusted profit before tax in the 2027 financial year will land broadly in line with the 2026 result.
The forecast reflects the reality that cost savings are being recycled back into the business rather than flowing through to the bottom line in the near term.
Broker Peel Hunt retained its “Buy” rating and 1,225p target price on the stock but trimmed its 2027 profit before tax forecast by around 3%, to £211 million.
Peel Hunt also upgraded its sales growth expectation to roughly 5% for 2027, a meaningful improvement on its previous estimate of 3%, reflecting confidence in the new direction.
The broker further reduced its 2028 profit forecast by around 1.5% to £221 million and does not anticipate any special dividends being paid before 2029 as capital is redeployed into growth.
Dunelm has earmarked approximately £125 million of additional capital expenditure across the three-year investment period, alongside a further £30 million to £40 million of one-off spending.
Despite the short-term pressure on earnings and the initial sharp sell-off in shares, Peel Hunt described the strategy as a “blueprint to back” for the retailer going forward.
The positive broker framing acknowledges that Dunelm had entered this period having seen both revenue and profit growth stall, making the case for decisive strategic action.
Investors will now be watching closely to see whether the combination of new stores, operational savings, and improved loyalty programmes can translate into meaningful top-line momentum over the plan’s three-year horizon.
