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.”
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.