Home improvement boom drives bumper dividend at Dunelm

  • Home goods supplier reports double-digit growth in sales and profit
  • Market share gains continue to outpace competitors

The home improvement boom has continued in earnest at dunelm (DNLM). Strong homeware and furniture sales in the six months leading up to Christmas prompted the retailer to announce a second special dividend in as much time.

The furniture retailer, which operates 175 stores in the UK, has thrived during the pandemic as consumers increased spending on their homes and diverted money from overseas travel and hospitality.

Sales were particularly strong during the winter sales period, with sales up 13% in the three months to December 25 compared to the previous year, when coronavirus restrictions at Christmas had led the retailer to aggressively discount products.

A higher proportion of full-price sales has boosted the profit margin this year, and management now expects pre-tax profits for the full year to be a third higher than in 2021 – in line with analysts’ recently updated forecast of £206m. in a full year.

Dunelm’s growth in market share has been a major force in recent years as the company has continued to benefit from the collapse of indebted rivals like Debenhams.

Dunelm has significantly outpaced the overall homeware, furniture and decorative DIY market, which has grown in the mid-single digits over the past decade, accelerating only slightly over the past two years to a growth rate annual compound of 2.2%.

Meanwhile, Dunelm has seen a CAGR of 12% over the past two years and 10% over the past five years. Customers grew to 13 million in 2021, up from 3 million over the past five years, also supported by the relaunch of Dunelm’s online presence in 2019. Digital sales now account for a third of all seller revenue furniture, and a recently opened e-commerce center in Stoke should provide an avenue for much more growth.

The biggest concern for the coming year will be whether Dunelm can weather inflationary pressures. With consumer spending growth having already started to slow in January due to the rising cost of living, this could reduce the amount households are willing to spend on housing. Nonetheless, as a value-oriented retailer, brokerage Peel Hunt sees Dunelm as a potential “net beneficiary” of tightening consumer wallets.

Russell Pointon, consumer sector director at Edison Group, noted that Dunelm has “navigated well through stormy seas caused by Omicron, inflationary pressures and supply chain issues.” Despite the broader economic uncertainty, a strong set of results signals the furniture chain’s “resilience in the face of the broader challenges plaguing the retail sector,” he added.

As property prices hit record highs in the UK, more people may be tempted to stay put and upgrade their current homes, which could mean more good news for Dunelm. The asking price is not prohibitive considering a quote of 16 times expected earnings and a forward dividend yield of 3.2%. To buy.

Last Seen IC: Buy, 1500p, 16-Sep-21

ORDER PRICE: 1285p MARKET VALUE: £2.6 billion
TO TOUCH: 1283-1286p TOP OF 12 MONTHS: 1599p LOW: 1219p
Semester to December 25 Turnover (£million) Profit before tax (millions of pounds sterling) Earnings per share (p) Dividend per share (p)
2020 719 112 44.6 12
2021 796 141 55.9 14
% cash +11 +26 +25 +17
Ex div: March 17
Payment: April 8
NB: DY excludes the special dividend of 37p, to be paid on March 18, ex-div February 24

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