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Dunelm: Continued Strong Growth In Second Quarter Trading

Dunelm shutterstock_282750725 725 x 500.jpg

Dunelm Group plc, the UK's leading homewares retailer, reports on trading for the 13-week period ended 26 December 2020. 
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Revenue

Total sales in the quarter were up 11.8%, reflecting continued very strong growth despite our classification as a non-essential retailer leading to further store closures during the period. 

The majority of the store estate was closed for a four week period during November, Welsh stores were closed for a 16-day period from mid-October and many stores were again impacted by further regional restrictions implemented towards the end of December. 

Throughout the quarter, consumer demand for homewares remained buoyant, and when our total retail system, including stores, was fully open, we performed significantly ahead of the market.  Our online home delivery business has more than doubled since the same period last year as we continue to enhance the digital customer experience and ramp up our operational capabilities. 

Click & Collect has remained popular with customers, equating to an average of 30% of prior year comparable store sales during periods of closure.  

Gross margin 

Gross margin in the quarter improved by 10bps compared to Q2 FY20, as lower discounts earlier in the quarter and sourcing gains were offset by lower seasonal sell through as a result of store closures later in the quarter.  On a year to date basis, gross margin improved by 50bps compared to the same period last year.

Our latest view is that gross margin in the second half will be broadly flat year over year, assuming the current restrictions do not continue beyond this quarter.  We are confident that through working closely with our supplier partners, we will be able to navigate the dynamic supply and demand outlook ahead. 

Balance sheet

The Group continues to have a very strong balance sheet with net cash of £141m as at 26 December 2020 (H1 FY20: net debt £68m) and access to £175m of approved banking facilities which remain unutilised. 

As previously highlighted, the FY20 year-end cash position benefited from approximately £80m of exceptional working capital inflows related to Covid-19.  As at the half-year end, there has been no reversal of working capital, but we continue to expect that the £80m will unwind before year-end. 

Operations update 

The Covid-19 pandemic continues to impact our operations.  Currently all 174 stores are closed to customers, with all but five stores still able to operate a Covid-secure and contactless Click & Collect service.  Home Delivery services continue to operate as normal.

Our first priority remains the health and safety of our colleagues and customers.  At the beginning of the pandemic, we took rapid and significant steps to introduce prudent and safe operating protocols across our operations.  We have maintained and monitored these practices throughout the year to ensure that we continue to improve and operate to the very highest safety standards.  

As previously announced, the Board decided to repay the £14.5m Job Retention Scheme (JRS) monies claimed in the prior financial year and we are not making further claims.  Furthermore, to protect our most vulnerable colleagues and those not working due to the current restrictions, we have introduced a company-funded 'furlough' equivalent scheme.

Whilst the supply of goods from Asia has been disrupted by port operations and global container shortages during the quarter, typical delays are now only 2-3 weeks.  At the half-year end, stock on hand levels remained slightly below last year and we have higher goods in transit. We expect to rebuild stock levels during the second half of the year. 

During the quarter we introduced new technology releases for product information management, delivery promises and a re-engineered checkout.  These new digital capabilities scaled successfully over our peak period and will allow us to continue to innovate our proposition at pace.

We also added additional capacity and capability to our flexible supply chain to respond to increasing demand for home delivery and we opened a new superstore in Gateshead in mid December, bringing our store estate to 174 stores.  

H1 financial performance and outlook

We expect profit before tax (PBT) for the first half of the financial year to be approximately £112m (H1 FY20: £83.6m) which includes the repayment of £14.5m JRS monies that were claimed in Q4 FY20.

The outlook for the second half of FY21 remains uncertain given that the majority of our stores are currently closed to customers and there is a lack of clarity on when the restrictions will be lifted.  As a result, we are unable to provide meaningful guidance for the full year outturn. 

During the restricted store trading period, we anticipate that Click & Collect and Home Delivery services will continue to be permitted.  At this level of restricted operations, the Group will make a modest weekly loss given our fixed cost base and the decision not to claim JRS support.  Our latest internal planning scenario assumes a return to more normal trading patterns in the fourth quarter of our financial year.  

Comment from Nick Wilkinson, Dunelm's Chief Executive Officer: 

"Our strong performance continued into the second quarter, whilst we adapted to the various restrictions and resulting store closures across our estate. I am immensely grateful for the engagement and resilience of the Dunelm team who, along with our suppliers, have demonstrated their outstanding commitment to our core value of being 'Stronger Together'.

"We enter 2021 with further restrictions and our primary focus remains the health and wellbeing of our colleagues and customers across the business.

"Beyond this near term uncertainty, we've never felt more confident about the future.  Our scalable proposition combines an in-store and digital offer which, with agile technology, we will continue to develop at pace.  As our homes play an increasingly important role for all of us, we are well placed to build even closer relationships with our customers and extend our market leadership."

Source : Dunelm

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15 January 2021

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