Dunelm shares hit as margins squeeze overshadows sales cheer
The chain posted an 8% fall in underlying half-year profits after a hit from hefty discounting and lower margin sales from its Worldstores business.
Homewares retailer Dunelm has seen shares come under pressure as surging sales failed to provide a boost to half-year profits.
The chain posted an 8% fall in underlying pre-tax profits to £60 million for the six months to December 30 after hefty discounting and lower margin sales from its recently acquired Worldstores business offset soaring trade.
Bottom-line profits were largely flat, up 0.7% higher at £56.3 million.
Shares tumbled as much as 15% at one stage before settling around 9% lower on fears over its margin squeeze.
It comes in spite of Dunelm’s results showing a 3.5% jump in like-for-like store sales and 36.8% hike in comparable online sales.
Total sales rose 18.4%, boosted by the Worldpay business.
Dunelm insisted its profit margins would be “more stable” in the second half, but this was not enough to allay investors’ concerns.
Its recent impressive sales rise has come at the expense of profits, flattered by the addition of Worldpay trade and moves to launch more end-of-season sales as part of a drive for more “newness” in its ranges.
Dunelm chairman Andy Harrison sought to give assurance over the full-year result, but admitted “there is still more work to do to convert our good top-line growth into better bottom-line profit growth”.
He added: “For the second half, we expect a more stable gross margin performance, similar to that of the first half, which, combined with increasing integration benefits from Worldstores, should help us to deliver good profit growth for the full year.”
It presents an immediate challenge for new chief executive Nick Wilkinson, who took up the reins on February 1.
Neil Wilson, a senior market analyst at ETX Capital, said: “It’s proving to be a very tough market out there – we’ve seen several retailers in the sector fail in recent months and margins are coming under pressure across the board.
“Consumer spending is softer of course, but the decline in property market activity is key – the less people move home, the less they spend on new furnishings.”