Dunelm Group plc Strong growth in the third quarter

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Dunelm Group plc (LON:DNLM), the UK’s leading homewares retailer, reported the following trading update for the 13-week period ended 30 March 2019.

Revenue

Total like-for-like (LFL) revenue for the third quarter increased by 12.5%, a strong result that continues the growth trend from the first half of the year.

– LFL store revenue increased by +9.8% year-on-year

– LFL online revenue on Dunelm.com continued to grow strongly in the quarter by +32.1%

– Total multi-channel revenue for the quarter, defined as LFL online revenue plus Reserve & Collect and tablet-based selling in-store, represented 18.5% of revenue, an increase of +4.1ppts year on year.

Total Group revenue was £284.5m, up +6.1%, reflecting the closure of the Worldstores and Kiddicare websites earlier in the financial year.

	13 weeks to 30 March 2019			39 weeks to 30 March 2019
	Revenue (£m)	YoY Growth (£m)	YoY Growth (%)	Revenue (£m)	YoY Growth (£m)	YoY Growth (%)
LFL Stores¹	225.9	+20.1	+9.8%	678.2	+40.7	+6.4%
LFL Online – Dunelm.com²	38.7	+9.4	+32.1%	101.2	+25.9	+34.4%
Total LFL	264.6	+29.5	+12.5%	779.4	+66.6	+9.3%
Non-LFL Stores³	19.9	+1.9	–	53.3	+8.5	–
Total Dunelm	284.5	+31.4	+12.4%	832.7	+75.1	+9.9%
Non-LFL Online – Worldstores⁴	0.0	-15.0	–	3.6	-52.4	–
Total Group	284.5	+16.4	+6.1%	836.3	+22.7	+2.8%

1. LFL Stores – stores trading for at least one full financial year prior to 1 July 2018 without any significant change of space. LFL stores revenues include Reserve & Collect sales, and home delivery sales in respect of orders placed via in-store tablets

2. LFL Online – Dunelm.com (excludes Reserve & Collect sales, and home delivery sales in respect of orders placed via in-store tablets)

3. Non-LFL Stores – new stores (including relocations) opened in the current or previous financial year, and existing stores with significant change of space in the current or previous financial year

4. Non-LFL Online – Worldstores.co.uk, Kiddicare.com and Achica.com (these websites are now closed)

Gross Margin

Gross margin increased by approximately 90bps at Group level compared with the third quarter last year. The margin improvement was driven by the positive impact of closing the dilutive Worldstores businesses and an increase in the core business margin of approximately 40bps, driven by improved sourcing.

In the final quarter, we expect our gross margin to continue to improve year on year, in part reflecting the high level of obsolete stock provisioning in the comparative period last year.

Business Update

As we enter the Spring/Summer season we continue to focus on delivering excellent retail operations in our core business. Additionally, as part of our drive to reach more customers with our brand, we have launched the fourth Home of Homes campaign, across multiple media channels including TV, and we are now sponsoring ITV’s flagship ‘This Morning’ programme (our 12-month partnership commenced on 1 March 2019).

Digital technology, including tablet-based selling in stores, has improved our experience for customers and we continue to invest in building our digital capabilities. We remain on track with the phased implementation of our new digital operating system. We are excited about the opportunities that will come with the full launch of the new systems, but will proceed carefully, mindful that we must minimise disruption to the strong growth trend we are seeing on our existing online platform.

There have been no changes to our store footprint during the quarter (169 superstores). We expect to open two new stores (including one relocation) towards the end of the financial year.

Financial Position and Outlook

As at 30 March 2019, net debt was £48.3m (FY18: £123.8m) and weekly average net debt during the year to date was £62.2m.

Against the backdrop of a dynamic retail climate, we have chosen to increase our investment in the business, specifically in the areas of technology and marketing as described above, to drive future profitable growth. Furthermore, as a result of improved financial performance, we expect full year performance incentives will pay out at a higher level across the business. These factors will result in the second half operating cost to sales ratio being slightly higher than the same period last year.

Political and economic uncertainty remains heightened as we enter the final quarter of our financial year. However, if there are no significant changes to current trends in consumer demand, we expect to report full year profit before tax slightly ahead of the top of the range of current analysts’ forecasts1.

Comment from Nick Wilkinson, Dunelm’s Chief Executive:

“We are delighted that customers continue to respond well to our improving homewares offer as we help them create a home they love. The strong growth in the third quarter reflects our ongoing focus on attracting more customers to the brand and giving them more reasons to shop with us through great product and service. Our performance was also buoyed by a positive homewares market.

“Our multichannel proposition is improving all the time and we are excited about the opportunities ahead of us as we continue to invest in and develop our digital capabilities.”

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