Dunelm plans London expansion after booming sales growth

Dunelm will open its first store in inner London boroughs after reporting its highest growth rate of sales in the capital in last year.

Sales rose 4.5 percent to £872.5 in the 26-week period ending December 30. Volume growth was more important than price increases. Volumes increased by 6 percent thanks to gains in market share on the furniture and homewares markets.

Dunelm reported that it had seen growth in the number of customers in all regions, age groups, and income levels up to £100,000. It said that the highest growth rates were achieved by the 16-24 year old age group in London.

Nick Wilkinson said that he would like ” to have more shops in London. Especially in the London Boroughs where we have no stores. It’s a matter of finding the perfect size and then doing it gradually.”

The FTSE 250 retailer has 183 stores in the UK. It operates ten of them in Greater London boroughs, including Colliers Wood and Beckton.

Wilkinson, aged 57, stated that “we didn’t have stores in Southeast and now we have stores in North Circular which are doing really well.”

Peel Hunt analysts said the growth in London indicated that the group “sees good cut-through through marketing campaigns and an improved online presence despite the relative lower store penetration”.

Dunelm has not changed its guidance for the full year profit before tax, despite its “uncertain” consumer outlook.

Wilkinson stated that the company will never “avoid anywhere” when it comes to opening new shops. He said that the company was not a destination store. “You won’t spend a whole day in Dunelm so we don’t want people to travel for hours just to see Dunelm.”

The retailer’s profit before tax rose by 4.8% to £123m during this period. It claimed to have maintained a “firm grip” on its input costs and stock levels. Wilkinson claimed that foreign exchange rates, increased freight rates due to shipping issues at the Red Sea are a “headwind”, which is being managed well. He anticipates that margins will increase by around 1 percent this year.

Stifel analysts said that the main risks facing Dunelm in this year are “related to the UK macroeconomic cycles and low growth prospects, as well as Dunelm’s ability to maintain market share.” The UK’s lower GDP, the slowing of housing transactions, and reduced credit availability may all have an impact on UK consumer spending, especially on large ticket items like furniture.

Wilkinson responded by saying that the average price of items purchased in Dunelm is £14, and therefore it’s a ” Low-Ticket Retailer. We sell furniture but at a lower price than the established players.”

Dunelm’s consumer outlook remains “uncertain”, but it has maintained its forecast of profit before tax for the full year, which is in line analysts’ consensus estimates between £199 million and £207 million.

Wilkinson stated that the market was very resilient, and he expected the homewares sector to return to growth in the short-to-medium term.

Dunelm began in Leicester in 1979, as a market stall selling curtains run by Bill Adderley and Jean Adderley. The retailer was listed in 2006 at a £340 million valuation. It is now Britain’s largest homewares retailer with 180 stores, 11,000 employees and a £2.18 billion market cap.

Leicester-based homewares retailer, The Leicester Company is one of the few retailers that has continued to be successful since the pandemic. It benefited from a boom in home improvements as people renovated their homes during lockdowns. Wilkinson explained that the wide range of products in their assortment allows them to cater to a variety of age groups and economic levels. Consumers will also “enjoy being knowledgeable about value” when spending power resumes.

Since “the rise” of discount food retailers, he said that the stigma associated with middle-class shoppers shopping at discounters has disappeared. The acceptance of shopping at different retailers has increased.

Dunelm shares closed at £10.57, down 28p or 2.6%.

Dunelm announced that it would pay a special 35p dividend following its celebration of sales and profit growth during the first half year.

Shareholders are entitled to an interim ordinary share dividend of 16p, which is up 7 percent from the first six months of last year. They will also receive a £71million special share dividend of 35p, which is down 13% from 40p.

Dunelm CEO Nick Wilkinson said: “Despite the ongoing pressures placed on consumers, we’re encouraged by the variety of new shoppers shopping at Dunelm and that existing customers are also returning more often.”

Peel Hunt analysts stated that they “assumed no additional special dividends for this year” (we had included a blanket 45p per annum into our estimates, but we have now reduced it to 40p for future years). This implies the shares will continue to yield a attractive rate of around 8 percent.