Home Business News Dunelm sustains sales momentum

Dunelm sustains sales momentum

by LLB Editor
14th Jul 21 12:16 pm

There has been the classic reaction from the market to Dunelm’s latest update. Despite saying profit will be ahead of expectation, the share price has fallen as the company is having to spend extra money to stay competitive.

Success with online sales has warranted investing in more warehousing and distribution infrastructure. That means a cash outlay now, but the potential to support much higher levels of the business in the future, so a wise investment.

The market doesn’t always see it that way. Investors are often too short-term in their thinking. Indeed, that seems to be the case with other points in Dunelm’s trading update.

“Delaying its summer sale into the new financial year means the recent fourth quarter period had better margins than expected as it didn’t have the dilution effect of offloading products at lower prices. But that means the 2022 financial year will have three sales instead of the traditional two, thus a hit to margins. This is only a one-off impact and nothing to really worry about,” says AJ Bell financial analyst Danni Hewson.

“Concerns about ongoing disruption to the supply chain means inventories will rise to ensure that it has enough stock to meet demand. That will push up storage costs and no doubt gobble up working capital, but fortunately that can be partially balanced by working capital benefits in the financial year just ended.

“The key takeaway from Dunelm’s latest update is that sales have remained strong beyond the initial reopening spending splurge that we saw as consumers were allowed back into shops, and they had cash ready to spend.

“Dixons gave the same message – for certain companies, the sales boost has momentum and it’s not simply a post-lockdown flutter.

“Dunelm is widely considered to be a top-notch retailer and its proposition of affordable but good quality homeware products has resonated with consumers as much more attention is paid to the state of one’s home.

“Lockdown brought about a big surge in DIY activity in order to make the home a nicer place to be. It’s not all about fixing broken fences and having a splash of new paints on the walls. The home improvement bug also includes the bedding, curtains, blinds and other items sold by Dunelm.

“Fortunately, it had already made a big investment in the digital channel prior to the pandemic so it was able to capitalise on heightened interest in its products as more people went online. Ultimately the trading performance seen over the past year or so would suggest Dunelm falls under the category of ‘the strong are getting even stronger’.”

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