Barclays has downgraded its stance for Dunelm Group PLC (LON:DNLM) to ‘equal weight’ from 'overweight' after cutting its target price to 630p from 810p following the FTSE 250-listed firm’s disappointing half-year results on Tuesday.
In a note to clients, analysts at Barclays said that while they still believed that the acquisition of WorldStores provides the homewares stores group with a better online platform than it had previously, they think the process of consolidating websites and reaping the benefits of the combined businesses may be slower and more challenging than they had previously anticipated.
READ: Dunelm Group shares slump as profits fall on tight margins; CFO departs
The analysts added: “The sequential lowering of WorldStores guidance is concerning, in our view, and leaves us with greater uncertainty on execution of the integration.”
They also raised concerns about store profitability, noting that while core Dunelm's online business has been growing well, in-store like-for-like sales have been less impressive, and if this continues they think it could hinder the group's operating leverage.
The analysts concluded: “Ultimately, we recognize the drivers of the story including store roll-out, improved online capabilities and an optically cheap valuation, but we lack confidence on execution in the near term.”
In early afternoon trading, Dunelm shares were down another 2.1% at 566.5p, having slumped by 10.5% in the previous session.