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Dunelm downgraded by JPMorgan Cazenove as profit warning and market conditions weigh

Analysts questioned whether the FTSE 250 retailer could continue to compete effectively in the UK market and whether its offering provided “enough inspiration and uniqueness”

Dunelm store
The bank also cut its price target for the firm to 620p from 710p

Dunelm Group PLC (LON:DNLM) has been downgraded to ‘Neutral’ from ‘Overweight’ by JPMorgan Cazenove as a profit warning issued in May coupled with an uncertain market outlook dented forecasts.

The investment bank said: “We believe that the UK consumer environment is uncertain and that big-ticket spending, in particular, remains weak. Dunelm’s performance has historically been correlated to housing transaction levels, and, with the group’s now higher weighting into big-ticket following the acquisition of Worldstores, we see greater risk than historically to a softer market outlook.”

READ: Dunelm expects lower profits as difficult retail market hits sales

Analysts also questioned whether the FTSE 250 retailer could continue to compete effectively in the UK homewares and furniture markets as they were unsure whether the company’s offering provided “enough inspiration and uniqueness”.

The bank also cut its price target for the firm to 620p from 710p, in addition to a reduction in its 2018 and 2019 financial forecasts by 5% and 10% respectively: “reflecting a combination of softer top line growth and negative operational gearing, as well as higher gross margin risk which we think continues into FY 19.”

On May 24, Dunelm said it expected its underlying profits for 2018 to be “moderately below” the previous year after weak consumer demand affected its sales figures.

The company reported a 4.7% drop in like-for-like store sales for the fourth quarter to date, saying trading conditions have been “materially more challenging than had been expected, within a soft homewares market”.

In mid-morning trading Wednesday, Dunelm shares were up 0.28% at 546.5p.

Quick facts: Dunelm Group plc

Price: 1238 GBX

LSE:DNLM
Market: LSE
Market Cap: £2.5 billion
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