Dunelm Raises Profit Guidance As Annual Sales Double

Dunelm Group plc ("Dunelm" or "the Group"), the UK's leading homewares retailer, reports on trading for the 13-week period ended 26 June 2021. 

¹ Digital % total sales includes home delivery, Click & Collect (Reserve & Collect before October 2019) and tablet-based selling in store. Digital sales penetration has been impacted by various periods of store closures both in Q4 FY20 and in FY21.

² 2YoY represents performance against the comparable period in FY19.

Returning to strong growth with the total retail system open

Total sales in the fourth quarter more than doubled compared to the same period last year when stores were closed during the first national lockdown. Given the exceptional circumstances in the comparative period, we have also provided comparisons against the pre-pandemic same period in FY19. On this two year basis, total sales in the quarter grew by 43.9%, demonstrating the increasing appeal of our improving homewares proposition for both new and existing customers.

Digital sales growth remained strong throughout the quarter, up 38% on the same period last year, and we were particularly pleased with the positive customer response to the reopening of our stores.  As previously announced, sales in the weeks following re-opening on 12 April were exceptionally strong, partly reflecting pent up demand. However, sales also remained robust for the remaining weeks of the quarter despite us delaying our usual Summer Sale event. 

Sales growth came from a broad range of categories including bedding, curtains, bathroom textiles and cushions, and newer categories such as dining furniture and decorative accessories. Click & Collect, representing approximately one quarter of total digital sales, continues to be a popular customer choice even with stores fully re-opened. Sales were supported by good growth in active customers and across all cohorts including those recently acquired. 

The homewares market³ showed further growth throughout the quarter. Encouragingly, since the re-opening of our stores in April, we have delivered sales growth materially ahead of the market and have gained meaningful share over the full year. This is despite significant periods of store closures during which some of our competitors were allowed to remain open. We continue to see many opportunities to expand our market leadership, harnessing an increasing consumer focus on the home, combined with ongoing improvements to our product offer and service proposition. 

³ Based on management's estimates using weekly GfK homewares market data. 

Gross margin improvement

Gross margin in the fourth quarter increased by 460bps compared to Q4 FY20. This increase was higher than previously anticipated due to the decision to postpone our Summer Sale, which would normally be complete by the end of Q4, into the start of FY22.

For the full year, gross margin improved by 130bps, reflecting the timing of Summer Sale and a lower level of discounting throughout the year.

The Group will maintain its focus on driving sourcing gains to mitigate ongoing cost price pressures across the supply chain. Additionally, we expect to return to a normal trading calendar in FY22 which will result in three Sale events within the financial year (as opposed to the usual two), leading to a margin headwind of approximately 70-100bps.

Financial performance and cash position 

As a result of the strong sales performance since re-opening and a higher gross margin rate than anticipated, we expect that profit before tax for the full year will be approximately £158m, slightly ahead of analyst forecasts⁴. 

Whilst stock levels returned to more normalised levels by the end of the financial year, we continue to experience disruption in the global supply chain as a result of the Covid pandemic. We expect that our inventory levels will increase during the first half of FY22 as we aim to mitigate the ongoing disruption and anticipate incremental storage costs for these higher stock levels. As at 26 June 2021 our inventory balance was £172m (FY20 Q4: £118m; FY21 Q3: £193m). 

As at 26 June 2021, the Group had net cash of £129m (FY20: £45m). This is higher than previously anticipated due to the strength of the trading performance since stores re-opened, which also resulted in a working capital inflow due to a lower stockholding and higher VAT payables. The Group has access to £175m of approved banking facilities which remain unutilised. 

⁴ Management understand the range of analysts' estimates (which have been updated since the trading update on 19 May 2021) for FY21 PBT is £149m-£153m.

New supply chain capacity to underpin future growth 

During the quarter we committed to two additional distribution facilities to create capacity for future growth.

The first is a new facility at the Daventry International Rail Freight Terminal (DIRFT) development in the East Midlands. This new warehouse will expand both our capacity and our capabilities for 'heavy and bulky' storage and also enable us to expand our Home Delivery Network (HDN), underpinning our plans to grow our furniture proposition.

The facility will be approximately 190,000 square feet and is currently under construction. The new building will reflect our sustainability and carbon reduction targets, with a target EPC 'A' rating and will incorporate 15% roof lights, rainwater harvesting and LED lighting.

The second facility is a standalone site in Stoke, located in close proximity to our existing warehousing and distribution campus, which will be dedicated to centralised ecommerce fulfilment. This site will be operated by a third party and will allow us to expand the capacity and capability of our home delivery offering, enabling sales growth and improving our fulfilment proposition. The space currently used within our existing operations for ecommerce fulfilment will be repurposed to enable growth in our physical retail business.

Both facilities are expected to become fully operational during this financial year, with related capital expenditure of approximately £12m and incremental operating costs of c. £8m in FY22. 

Outlook

FY21 was an exceptional year for Dunelm and, even though our physical stores were closed for more than a third of the year, we delivered a very strong performance, reflecting both the benefits of our investments to develop our digital capabilities and the fantastic response of our colleagues to some unprecedented challenges. 

We expect to see continued appetite for consumers to improve and refresh their homes and, whilst the macro economic outlook remains unclear, and we have strong comparatives in the first quarter, we are well placed to further expand our market share through ongoing improvements to our customer offer. 

We will increase investment levels in FY22 to enable our growth ambitions, investing in our digital and data capabilities, store experience and commercial capabilities, as well as in our supply chain, as described above. We continue to focus on our own productivity improvements to mitigate the macro pressures from a tight labour market and cost price inflation. We will provide a more detailed update of the investment plans in our full year results in September. 

Comment from Nick Wilkinson, Dunelm's Chief Executive Officer: 

"In what has been a challenging year for Dunelm, I would like to personally thank my colleagues for their extraordinary efforts and adaptability.   

"Although our stores were closed for more than a third of the year, our strategy of investing in our digital capabilities allowed us to adapt to the changing environment and deliver strong growth. 

"From what we have learned during the pandemic about our customers, colleagues, suppliers and our other stakeholders, we are more confident than ever about the opportunity to increase our market leadership and we will invest further in our proposition to support our growth ambitions. 

"With many exciting developments in the pipeline to make us the first choice for home, and grow our customer base and frequency, there is a lot to look forward to."

Source : Dunelm

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