Dunelm saw profits decline despite achieving record sales amidst a ‘period of extensive economic uncertainty’.
The homeware retailer said that profit before tax decreased by 7.8 per cent to £192.7million for the 52 weeks to 1 July.
Dunelm achieved record sales of £1.4billion, up 5.5 per cent on last year but below the level of consumer prices inflation that reflects the rise in prices over the past year.
CPI inflation came in at 6.8 per cent today, lower than expectations, which could lead the Bank of England to ease off after this week’s forecast base rate rise to 5.5 per cent.
An end to rate hikes could provide a boost to Dunelm, as it would ease the squeeze on the property market from higher mortgage rates that is impacting consumer demand for sprucing up their homes.
Dunelm’s profits decreased by 7.8 per cent to £192.7million for the 52 weeks to July
Nick Wilkinson, chief executive officer of Dunelm, said: ‘In a period of extensive economic uncertainty, we have maintained our focus on enhancing our customer proposition, expanding our offer whilst staying fully committed to value and making every pound count.
‘As we manage the ongoing challenges, it is crucial that we do not lose sight of our longer-term ambitions. We are committed to raising the bar on value and joy for our customers and continuing to invest where we see good returns, so that we can seize the various opportunities ahead.’
Dunelm also revealed that net debt rose to £30.7million, which is a £6.9million increase on last year’s result of £23.8million.
Dunelm shares were down 0.74 per cent to 1,075.00p in morning trading on Wednesday.
The retailer was a pandemic winner as homeowners spruced up their properties, which saw Dunelm shares top 1,500p. The stock halved to lows below 700p last September but Dunelm shares have rallied since and are up 37.6 per cent over the past year and 8.4 per cent this year.
In a note to clients in July, analysts at the Royal Bank of Canada (RBC) said consumers were being forced to spend more selectively given rising mortgage rates and higher food prices.
The broker downgraded its rating on Dunelm’s stock to ‘underperform’ from ‘sector perform’ and cut the target price to 1000p from 1300p.
‘Dunelm remains a well-managed business, with a strong position in the UK homewares market,’ said RBC’s brokers.
‘However, given a softer housing market and ongoing pressures on consumer spending, we expect growth to be hard to come by for Dunelm in the short-term.’
Neil Shah, director at Edison Group, said: ‘Dunelm is furnishing its coffers with ever-more funds as it today announces an impressive turnover surpassing £1.6bn.
‘An uptick of 5.5 per cent in total sales year-on-year and a jump in market share to 7.2 per cent indicates a solid footing, even though their pre-tax profit margin slightly tapered off.
‘While current market dynamics may remain capricious, Dunelm’s roadmap paints a promising picture for FY24.’
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