Dunelm profits and sales surge: What the analysts say

Freddie George, Cantor

We are for the time being retaining our FY15 pre-tax profit forecast of £124m and our FY16 forecast of £130.5m. Following the return of Will Adderley as chief executive, we believe the company is going through a period of consolidation so earnings growth over the medium term is likely to slow. It is now channelling significant expenditure into strengthening online and logistics infrastructure to bring the company more into line with peers such as John Lewis. However, we believe these results will be well received.

The company has made a commitment to grow sales by 50% over the medium term through store openings, improving like-for-likes and developing the home delivery channel, which saw sales up by 76% in the period and accounts for over 5% of sales. The company is also paying a 70p special dividend and confirming that it will start to operate with moderate leverage (up to 0.75x EBITDA) in this low interest rate environment. This implies there will be scope to pay further special dividends in future years if the leverage falls to below 0.25x.

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Georgina Johanan, JP Morgan

Dunelm has released in-line H115 results and guidance on the near-term outlook is in line with BBG consensus estimates. Management’s tone on medium-term growth is confident. The announcement of a special dividend has come sooner than we expected and the more formal guidance regarding ongoing cash distributions is also a positive surprise.

Operating costs increased by 17% in H115 and opex growth is expected to remain broadly at this level in H215. In addition to new stores, this increase has been driven by key strategic initiatives to drive the top line including online fulfilment costs, marketing investment and an uplift in logistics costs to support furniture sales. Consequently Dunelm expects H215 top-line growth to be absorbed by this ongoing opex investment.

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Nick Bubb, independent analyst

Back on January 8, in the pre-close update, Dunelm reported a c4% rise in like-for-like sales in the Christmas quarter (to December 27) – which was not bad given their weak online presence – and forecast a decent 10% rise in H1 profits to £68m profit before tax. So today’s interims contain few surprises on the face of it, but the 70p special dividend is a nice reward for shareholders, although they will have mixed feelings about the warning that “in the remainder of this financial year we expect the benefits of top-line growth to be largely absorbed by increases in operating costs” and the news that “since he resumed the role of chief executive in September, Will Adderley has set about creating a fresh, entrepreneurial and ambitious culture of sales-led growth throughout the business”. Dunelm’s new medium-term goal of growing sales by 50% will no doubt be a big talking point.

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John Stevenson, Peel Hunt

H1 profit before tax is in line with guidance, although a £140m special dividend is both sooner and more sizeable than expected. Forecasts remain unchanged. We see upside potential to medium-term forecasts (Jun 2016E and beyond), against the backdrop of rising disposable incomes and a more aggressive trading stance.

H1 costs increased by 17%, reflecting planned strategic investments and an acceleration in new store openings. We see FY2015 as the peak year for cost investment and we expect costs as a proportion of sales to decline from FY2016E onwards. With our forecasts based on like-for-like sales growth of 2.5%, a combination of management’s more aggressive trading plans and rising disposable income is likely to see upgrades as we move into peak autumn trading.