Dunelm Group plc - Second quarter trading update

14 January 2021

Dunelm Group plc

Second quarter trading update

Dunelm Group plc ("Dunelm" or "the Group"), the UK's leading homewares retailer, reports on trading for the 13-week period ended 26 December 2020.

¹ Digital includes Home Delivery, Click & Collect (Reserve & Collect before October 2019) and tablet-based selling in store.

Revenue

Total sales in the quarter were up 11.8%, reflecting continued very strong growth despite our classification as a non-essential retailer leading to further store closures during the period.

The majority of the store estate was closed for a four week period during November, Welsh stores were closed for a 16-day period from mid-October and many stores were again impacted by further regional restrictions implemented towards the end of December.

Throughout the quarter, consumer demand for homewares remained buoyant, and when our total retail system, including stores, was fully open, we performed significantly ahead of the market.  Our online home delivery business has more than doubled since the same period last year as we continue to enhance the digital customer experience and ramp up our operational capabilities.

Click & Collect has remained popular with customers, equating to an average of 30% of prior year comparable store sales during periods of closure. 

Gross margin

Gross margin in the quarter improved by 10bps compared to Q2 FY20, as lower discounts earlier in the quarter and sourcing gains were offset by lower seasonal sell through as a result of store closures later in the quarter.  On a year to date basis, gross margin improved by 50bps compared to the same period last year.

Our latest view is that gross margin in the second half will be broadly flat year over year, assuming the current restrictions do not continue beyond this quarter.  We are confident that through working closely with our supplier partners, we will be able to navigate the dynamic supply and demand outlook ahead.

Balance sheet

The Group continues to have a very strong balance sheet with net cash of £141m as at 26 December 2020 (H1 FY20: net debt £68m) and access to £175m of approved banking facilities which remain unutilised.

As previously highlighted, the FY20 year-end cash position benefited from approximately £80m of exceptional working capital inflows related to Covid-19.  As at the half-year end, there has been no reversal of working capital, but we continue to expect that the £80m will unwind before year-end.

Operations update

The Covid-19 pandemic continues to impact our operations.  Currently all 174 stores are closed to customers, with all but five stores still able to operate a Covid-secure and contactless Click & Collect service.  Home Delivery services continue to operate as normal.

Our first priority remains the health and safety of our colleagues and customers.  At the beginning of the pandemic, we took rapid and significant steps to introduce prudent and safe operating protocols across our operations.  We have maintained and monitored these practices throughout the year to ensure that we continue to improve and operate to the very highest safety standards.  

As previously announced, the Board decided to repay the £14.5m Job Retention Scheme (JRS) monies claimed in the prior financial year and we are not making further claims.  Furthermore, to protect our most vulnerable colleagues and those not working due to the current restrictions, we have introduced a company-funded 'furlough' equivalent scheme.

Whilst the supply of goods from Asia has been disrupted by port operations and global container shortages during the quarter, typical delays are now only 2-3 weeks.  At the half-year end, stock on hand levels remained slightly below last year and we have higher goods in transit. We expect to rebuild stock levels during the second half of the year.

During the quarter we introduced new technology releases for product information management, delivery promises and a re-engineered checkout.  These new digital capabilities scaled successfully over our peak period and will allow us to continue to innovate our proposition at pace.

We also added additional capacity and capability to our flexible supply chain to respond to increasing demand for home delivery and we opened a new superstore in Gateshead in mid December, bringing our store estate to 174 stores.

In December, our store colleagues organised a campaign to 'deliver joy' in the form of personalised Christmas gifts for the most vulnerable in their local communities.  Working in partnership with our customers and with local primary schools, care homes and women's refuges, the response was incredible, and over 18,000 gifts were delivered.  This campaign spread organically across social channels with a reach of over 84 million and 786k shares.

H1 financial performance and outlook

We expect profit before tax (PBT) for the first half of the financial year to be approximately £112m (H1 FY20: £83.6m) which includes the repayment of £14.5m JRS monies that were claimed in Q4 FY20.

The outlook for the second half of FY21 remains uncertain given that the majority of our stores are currently closed to customers and there is a lack of clarity on when the restrictions will be lifted.  As a result, we are unable to provide meaningful guidance for the full year outturn.

During the restricted store trading period, we anticipate that Click & Collect and Home Delivery services will continue to be permitted.  At this level of restricted operations, the Group will make a modest weekly loss given our fixed cost base and the decision not to claim JRS support.  Our latest internal planning scenario assumes a return to more normal trading patterns in the fourth quarter of our financial year. 

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

"Our strong performance continued into the second quarter, whilst we adapted to the various restrictions and resulting store closures across our estate. I am immensely grateful for the engagement and resilience of the Dunelm team who, along with our suppliers, have demonstrated their outstanding commitment to our core value of being 'Stronger Together'.

"We enter 2021 with further restrictions and our primary focus remains the health and wellbeing of our colleagues and customers across the business.

"Beyond this near term uncertainty, we've never felt more confident about the future.  Our scalable proposition combines an in-store and digital offer which, with agile technology, we will continue to develop at pace.  As our homes play an increasingly important role for all of us, we are well placed to build even closer relationships with our customers and extend our market leadership."

For further information please contact:

Next scheduled event:

Dunelm expects to release its half year results announcement on 10 February 2021.  There will be a virtual presentation for analysts at 9.30am that morning.  Those analysts who wish to attend are requested to contact Ailsa Prestige of MHP Communications at ailsa.prestige@mhpc.com.  A copy of the presentation will be made available at https://corporate.dunelm.com.

Quarterly analysis:

2 Total LFL: LFL stores and online (home delivery). LFL stores are those stores trading for at least one full financial year prior to 27 June 2020 without any significant change of space. LFL store revenues include Click & Collect / Reserve & Collect sales and home delivery sales in respect of orders placed via in-store tablets

Notes to Editors

Dunelm was founded in 1979 as a market stall business, selling ready-made curtains. The first shop was opened in Leicester in 1984 and over the following years the business developed into a successful chain of high street shops before expanding, following the opening of the first Dunelm superstore in 1991, into broader homewares categories. Dunelm is now a multi-channel retailer, with dunelm.com being launched in 2005.

Dunelm is market leader in the £14bn UK homewares market and active in the £12bn UK furniture market. It currently operates 174 stores, of which the majority are out-of-town, and trades online through dunelm.com. Dunelm employs approximately 10,000 colleagues and sells approximately 50,000 product lines (including store and online exclusives).

Dunelm, "The Home of Homes", offers a customer proposition of style, value, quality and ease of shopping. From its textiles heritage, in areas such as bedding, curtains, cushions, quilts and pillows, Dunelm has broadened its product range to a complete homewares offer including the likes of kitchenware, dining, lighting, seasonal, wall art and rugs. Dunelm is one of the few national retailers to offer an authoritative selection of curtain fabrics by the metre and owns a specialist UK facility dedicated to producing made-to-measure curtains and blinds.

The product range includes many exclusive, own brand designs and owned premium brands such as Dorma and Fogarty. This is augmented by a range of other well-known brands and licence agreements.

Dunelm has been listed on the London Stock Exchange since October 2006 (DNLM.L) and has a current market capitalisation of approximately £2.6bn.