Value homewares chain Dunelm reported another set of positive full year results this morning as pre-tax profits surged 15.1% to £96.2m in the 52 weeks to 30 June. The City was not disappointed.
“Much of Dunelm’s success can be attributed to the attractiveness of its proposition to consumers. It is differentiating from value-focused peers from its comprehensive home ranges commanding both strong value credentials and positive consumer perceptions in relation to product design and quality. Moreover, Dunelm has proactively looked to evolve its proposition, taking advantage of the current growth spots at the more premium end of the market.
Looking ahead, the difficult external environment will continue to exert downwards pressure, stemming the potential for any significant recovery in demand in home. Moreover, Dunelm is facing mounting competitive threats including the continued expansion of John Lewis’ At Home format and improved soft furnishings offers from retailers such as IKEA. However, the retailer’s proposition has proved immensely relevant during the past few years and it is ideally positioned to take advantage of prevailing consumer sentiment.” Joseph Robinson, Conlumino
“Final results to end of June were in line with market expectations.
“We have debated ‘long and hard’ whether to upgrade this stock to buy over the last eighteen months. The attractions are that the company has a clear niche in a category, where competition is fragmented. It has, we believe, also a great opportunity to improve gross margins (currently around 50%) by growing own label and to develop a multi channel platform. In addition, it has further opportunity to roll out new stores and currently has 118 superstores with a development potential for up to 200. The stock has significantly outperformed the market since the beginning of the year and is trading at new record highs. We are retaining our Hold recommendation for the time being but upgrading our price target from 520p to 640p with the objective of looking to buy this stock on weakness.” Freddie George, Seymour Pierce
“FY’12 has been another year of good progress for Dunelm with strong sales, margin and profit growth. PBT of £96.2m is in line with expectations. With a Q1 IMS due on 3rd October and no formal update on current trading reported today we do not anticipate any changes to market estimates at this stage. The store pipeline continues to build and we continue to see significant headroom for UK expansion going forward along side multi-channel development. We will review our target price in due course but recognise that Dunelm remains an extremely well managed business with significant headroom for expansion and online development.” Matthew McEachran, Singer Capital
The stock has been a strong performer, reflecting both the group’s organic roll-out potential in the fragmented home furnishings market, and perhaps more recently market anticipation of a further capital repatriation. We remain strong fans and supporters of the management and the format. The new news confirming a target portfolio of 200 stores, at the top end of previous guidance, will lead us to reappraise our target price and recommendation (Hold). David Jeary, Investec