Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
The lockdown has undoubtedly been boom time for Dunelm. And indeed, not just Dunelm Group (DNLM) but pretty much every other home furnishing and decorating store, from sofa maker DFS to Screwfix and B&Q-owner Kingfisher.
Home decorating fever appears to have taken hold during lockdown and, as a result, Dunelm has seen sales and profits boosted - thanks to its time-rich, often cash-rich and definitely growing customer base.
Online customer growth accelerated by a staggering 200% in the first half of the year at Dunelm Group, the home furnishings chain, as home-bound Brits had time on their hands to focus on their living spaces and the lockdown triggered something of a nationwide need to re-think the décor of those now all too familiar ‘four walls’. That helped overall customer numbers increase by 4.4% across the group, in the 12 months to 3 December 2020, despite two periods of store closures.
It seems that shoppers shopped, despite the lockdowns. Or maybe even because of them. The company saw July sales rise by 59% year-on-year. Demand eased slightly in August; although sales were still 24% higher than during the same period the year before.
Overall, in the second quarter sales grew by 11.8% despite further periods of store closures. But that does not necessarily reflect the whole picture. Performance remained well ahead of the market for the first half of the year, with a particularly strong performance in the first quarter, when there were no store closure impacts to speak of. However, as if to prove Dunelm’s lockdown-resistant credentials, it is the digital sales that really took off though, seeing a tremendous 111% rise in the first half of the year.
All eyes will be on whether that online trend has continued when Dunelm gives its third quarter trading update on Thursday.
The secret of Dunelm’s lockdown success arguably lies in its strategy. Unlike some of its less successful counterparts, it has made sure it meets customers’ needs - from the rollout of its online sales platform to the introduction of more sustainably-sourced products.
Its out-of-town stores have also appealed to socially-distanced shoppers, who have welcomed the chance to browse and buy online and then collect in store. Something that has been maintained during the second and third lockdowns, despite all but essential retailers being forced to close to in-store shoppers.
This has all been done under the leadership of chief executive Nick Wilkinson, who took the helm in 2017, and who had already taken steps to streamline Dunelm’s offering and focus on its core business. Gone were the underperforming Worldstores and Kiddicare websites and investment was instead ploughed into its core digital offering.
Much like we have seen elsewhere in retail, in particular in fashion, less of a need to discount sales has also helped boost profit margins. Back in February, the company said it expected second-half trading margins to be “broadly flat to slightly positive” when compared to a year earlier. And it said that margins in the second-half are historically lower than in the first half due to the timing of the Winter and Summer sales. It will be interesting to see whether that situation has altered at all since the start of this year.
Of course, Covid has come with costs attached. It is estimated that necessary Covid-19 and social distancing measures have increased costs by £5 million across its store and supply chain, pushing total costs 23% higher year-on-year.
The picture going forward will start to look clearer once non-essential retail reopens, but the group reckons that despite stores being currently closed, online sales will cover around 70% of the total sales achieved the year before the pandemic.
And that is not bad going at all, either during a pandemic or for a company that started out as a market stall in Leicester in 1979, selling ready-made curtains
More on Dunelm Group
Important information: Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.
Share this article