Dunelm PLC (LON:DNLM) shares rose on Wednesday after the homewares retailer said it was taking action to simplify the business after its annual profit was hit by continued tough trading conditions on the high street and the impact of its Worldstores acquisition.
The FTSE 250-listed group said its pretax profit for the year to the end of June fell 6.7% to £102mln on sales 9.9% higher at £1.05bln. Dunelm nudged up the dividend by 1.9% to 26.5p.
It said store like-for-like sales increased by 1.0%, while like-for-like online sales were up 37.9%, reflecting its increased focus on this channel as customer shopping behaviour continues to move online. Like many of its bricks-and-mortar peers, Dunelm has been growing its online business as it reacts to changing consumer habits.
Analysts at UBS had forecast pretax profit of £102mln, in line with guidance issued in July when Dunelm said it had struggled to sell its discounted product lines during the summer period, resulting in a £3mln dent to its earnings.
The Swiss bank added that the market was weaker than expected a year ago, with continued pressure on discretionary incomes as well as lower consumer confidence and a weaker housing market recently showing up in the figures of fellow retailer John Lewis.
Future profitable growth drive
"Following healthy sales growth over the past year, we are now taking steps to simplify the business under the core Dunelm brand, with one web platform and an integrated supply chain. This will allow us to respond more quickly to the changing consumer environment and drive future profitable growth,” Dunelm’s CEO Nick Wilkinson said in a statement.
"The UK retail environment remains challenging, but against this difficult background we have traded in line with expectations during the current financial year to date,” he added.
The company, which issued a profit warning in May, attributed some of the fall in earnings to its acquisition of Worldstores but said the integration of the business was on track.
Neil Wilson, chief market analyst at Markets.com commented: “The chief concern is that Dunelm is heavily discounting to maintain market share, generating positive headline like-for-like sales growth at the expense of profit.”
He added: “The acquisition of lower margin Worldstores has been earnings dilutive but management is progressing with the integration of the business under the core Dunelm brand. UK retail market remains tough, especially physical stores, whilst the softer property market undoubtedly means people are updating soft furnishings less often.”
In mid-afternoon trading, Dunelm shares were 8% higher at 551p.
-- Adds analyst comment, share price --