Dunelm’s record profits as cost of living squeeze fails to dent sales

Dunelm has seen profits soar to record levels as strong online demand for its household items persisted post-lockdown – and sales held up despite pressure on the cost of living.

The home furnishings retailer’s pre-tax profits rose by just under a third to £209 million in the 52 weeks to 2 July, although the cost of living crisis began to strain Britain’s household finances.

Dunelm’s total revenues rose 16.2 per cent to £1.55 billion, helped by the addition of an additional summer sales event and market share gains in both homeware and furniture.

The FTSE 250 company said there was great interest in its winter warm and seasonal outdoor furniture ranges, as well as in its new partnership with the Natural History Museum.

It also benefited from a weaker comparable period last year, when the stores were only able to offer a click-and-collect service much of the time due to strict Covid-19 regulations.

Digital revenues fell by £71m due to the lack of store closures, but they still represented 35 per cent of the group’s total turnover and were about two and a half times above pre-pandemic levels.

Dunelm Group Shares rose 3.7 per cent to £7.50 on Wednesday, although their value has fallen by more than half in the past 12 months as rising costs have left investors concerned about the UK retail sector.

Dunelm’s operating expenses rose 11.3 per cent to £581.8 million last year, in part due to a 7 per cent pay increase for its 11,000 employees in recognition of higher inflation.

Additional cost increases were the result of the reintroduction of corporate rates, the reimbursement of leave payments and the decision to increase inventory volumes to mitigate supply chain disruptions.

Long-term decline: Dunelm Group shares have fallen by more than half in the past 12 months as investors worry about rising costs in the UK retail sector

Chief executive Nick Wilkinson acknowledged the business environment was “very challenging” but said the company was “confident and well prepared to withstand the current economic pressures.”

“We’ve come out of an unprecedented global pandemic as a bigger, better company, and we believe we have the tools to do it again.”

He added: ‘In this environment we need to make sure every pound counts, both for ourselves through our tight operational grip and cost discipline, and for our customers through our offering of excellent value at all price points.’

Dunelm was a major pandemic winner thanks to the stamp duty holiday, cheap mortgage rates and Britons’ desire to improve their homes, boosting property purchases and demand for household goods.

Further gains came from the growing trend for work from home and the release of pent-up demand as lockdown restrictions were eased, which more than doubled the company’s stock in value during the first year of the pandemic.

Although its share price has fallen as inflation started to bite, the company said earnings for the first ten weeks of the current fiscal year had “remained robust” and was on track to meet analyst forecasts.

However, Russ Mold, AJ Bell’s investment director, warned: “Even Dunelm can’t change the economic weather, and it seems sales will eventually suffer as people wait a little longer to replace that duvet cover or pair of curtains.

“While the retailer is desperately trying to ‘make every pound count’, to use CEO Nick Wilkinson’s language, and doing what he can to keep costs down and provide value to customers, there may be some confidence that it storm out of a stronger company.’