Dunelm Group has reported a like-for-like sales fall of 4.2% in its second quarter over the Christmas period, resulting in a like-for-like dip of 1.2% for its first half.

For the 26 weeks to January 1, Dunelm said it recorded like-for-like sales up 2.1% in the first quarter, but this was offset by a fall of 4.2% in the second, leading to the slight decline over the first half. The homewares retailer said this reflected continuing strong comparatives as well as a more difficult trading environment, particularly in the weeks immediately preceding Christmas.

Broker Investec said the downturn in the second quarter was slightly worse than the 2% it estimated, but the margin has held up better then it expected.

Total sales for the half grew by 8.5% as it continues to open new superstores, refit existing stores and relocate existing under-sized stores. It currently has 100 superstores, and has a medium to long-term target of 150-200.

Three major store refits were completed in the first half. Dunelm said sales uplifts are encouraging, and expected to generate a return on investment of approximately £0.7m per store.

Gross margin for the period is estimated to have improved by 110 basis points compared with the same period last year. Dunelm said active management of gross margin enabled it to offset cost increases in the supply chain while still delivering strong value for customers.

The board said it remains confident in the group’s prospects for long-term growth.

In the short term, it said it remains cautious about the consumer environment as it said the increase in VAT will place further pressure on ex-VAT revenues, and the recent rise in cotton prices is expected to feed through to increased cost of goods.

Will Adderley, Dunelm chief executive said: “We have continued to develop our business successfully during the half and we were delighted to celebrate the opening of our 100th superstore at the beginning of December. The business is in good health operationally and we remain in a very strong financial position.

“However, trading conditions have been tough in our most recent quarter, especially in our peak trading weeks in late November and early December and this has had an impact, albeit limited, on both revenues and earnings.

“Looking ahead we are facing a number of external factors in our market which could affect both consumer demand and bought-in costs for a period of time. However, we are very confident that we can use our strong financial position and entrepreneurial flexibility to trade our way through this period and build an even stronger business for the long term. We will continue to expand through our strong pipeline of new stores, refits and further investments in support of our strategy.

“Nick Wharton joined the business on a full-time basis in December and as previously announced he will formally take over the role of chief executive from 17th February when I will become executive deputy chairman.”