Dunelm Group PLC (LSE: DNLM) has retained its ‘buy’ rating from UBS despite a round of earnings downgrades from the Swiss investment bank.
UBS cut its price target on the homewares retailer to 1,130p from 1,250p, even as shares climbed 5% on Thursday to trade at 769p.
The downgrade to forecasts was triggered by softer first-quarter trading, which led analysts to trim their sales growth estimate for the 2027 financial year to 3.5% from 3.9%.
Higher store costs and a slightly elevated tax rate combined to drive a 5% reduction in earnings per share projections for the 2027 financial year.
UBS now forecasts pre-tax profit of £210 million for 2027, representing a 4% decline from its previous estimate, with further reductions applied to subsequent years.
Earnings per share estimates were cut by 6% for the 2028 financial year and by 5% for 2029, reflecting a more cautious near-term outlook for the business.
Despite the trimmed forecasts, UBS highlighted that Dunelm’s valuation has fallen to around ten times projected 2027 earnings, its lowest level since 2019, a point the bank sees as compelling for long-term investors.
The broker also pointed to Dunelm’s strong track record of investment returns as a key reason to remain constructive on the stock even through a period of elevated spending.
On the dividend front, UBS analysts see enough flexibility for Dunelm to sustain an ordinary dividend yield of around 6%, though the prospects for future special dividends carry some risk given increased capital expenditure plans.
To reignite growth, Dunelm is targeting up to ten new store openings per year, along with more than 50 store renewals by the 2028 financial year and a focused push into digital personalisation.
The company has effectively framed 2027 as an investment year, with management expecting performance to improve progressively as that spending begins to deliver returns.
Faster sales growth remains the central pillar of UBS’s investment case, with the bank betting that Dunelm’s expansion strategy will reassert momentum over the medium term.
