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Dunelm stockpiles ahead of Brexit but shares jump on improved interims and dividend hike

The FTSE 250 furniture retailer said it had identified “some risks” from potential disruption at ‘deep-sea’ ports in the aftermath of the UK's exit
Dunelm store
Despite the Brexit concerns, the company said it was still confident of meeting full year expectations

Dunelm Group PLC (LON:DNLM) has said it has begun stockpiling parts of its best-selling lines and was hedging against a “sudden decline” in sterling in preparation for Brexit, although shares jumped in early deals as it reported improved interims and hiked its dividend.

The FTSE 250 homeware retailer’s chief financial officer, Laura Carr, said that the firm imported less than 1% of its goods from the EU, however it had identified “some risks” from potential disruption at ‘deep-sea’ ports in the aftermath period, and as such was taking steps such as purchasing incremental stock and securing additional supply chain capacity.

READ: Dunelm shares surge as investors cheer Christmas trading update

Carr added that like other retailers it was “exposed to any impact Brexit may have on currency and consumer confidence” but the impact of any significant disruption to the homewares market was “difficult to predict”.

The group had previously cautioned on the “unprecedented levels of uncertainty” earlier this year but maintained that its pre-tax profits would be modestly ahead of the top range of market forecasts if the homewares market continued to grow at a similar rate.

Dividend hiked amid strong profit and margin growth

For the first half, Dunelm reported pre-tax profits of £70mln, up from £60mln a year ago, while like-for-like (LFL) revenues rose to £506.7mln from £473.9mln.

Gross margins had also risen in the period to 50.3% from 48.6% while net debt had fallen to £72.9mln from £134.3mln.

The interim dividend was raised to 7.5p per share from 7p a year ago.

In a more general outlook, chief executive Nick Wilkinson said that group was “confident” of delivering market expectations for the full year, which were estimated at pre-tax profits of between £114mln-£118mln, provided there was “no material change in the macro-economic environment”.

Firm “rightly conservative” on Brexit risk, says broker

In a note to clients, analysts at broker Peel Hunt said the results had been in line with the upgraded expectations from the trading update in January, adding that Dunelm’s management was “rightly conservative on Brexit risk”.

The broker also reiterated its ‘Buy’ rating on the stock, with special dividends “on track” to return in the 2020 fiscal year.

“Mathematically, following £9mln improvement in core Dunelm profits in [the first half], the consensus is based on a £7mln decline [year-on-year in the second half]; we expect small upgrades to the consensus as a consequence.”

Shares were up 4.6% at 750p.

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