Shore Capital still sees reasons to 'buy' Dunelm despite festive slump

(Sharecast News) - Dunelm's share price plummeted on Thursday after a festive slowdown prompted the homewares retailer to scale back its full-year outlook, but that wasn't enough to prompt broker Shore Capital from changing its 'buy' recommendation on the stock. The retailer said that first-half sales rose by 3.6%, as a 6.2% increase in the first quarter was following by just 1.6% growth in the second, due to tough trading conditions and increased competitor activity from Black Friday to Christmas.

As a result, Dunelm said it expects full-year pre-tax profit to be at the lower end of the consensus range at £214m-227m.

The stock had dropped nearly 18% to 960.5p by 1229 GMT.

Nevertheless, according to Shore Capital, the previous announcement by the company that profits would be more weighted to the second half this year means that an estimated 8% decline in first-half profits would still be met with a solid performance in the second half.

"Even the bottom of this [consensus] range would still represent slight growth YoY (+2.6%)," said analyst David Hughes.

"What remains to be seen is whether this December weakness is the start of a tougher market for Home and Furniture or simply a festive blip following the late November Budget. For our part, there are still reasons to be positive on the market outlook," Hughes said, highlighting an improving housing market following the recent Bank of England rate cut, lower food inflation and high levels of household savings.

As for Dunelm's valuation, the stock is trading at 14 times earnings for the 2026 calendar year, a slight premium to the sector at 11-12 times earnings. However, Hughes said: "Dunelm's track record of strong shareholder returns means that in our view, Dunelm remains an above-average retailer and this premium is justified."