Dunelm’s sales shrug off the ‘challenging’ market, but the impact on the budget weighs heavily

Dunelm shares fell on Thursday after the group faced ‘challenging’ market conditions and additional ‘cost headwinds’ in the second half of the financial year.

The Leicestershire-based homeware retailer’s turnover grew 1.6 per cent to £490 million in the 13 weeks ended December 28 and 2.4 per cent to £894 million in the first half of the financial year.

The share of online purchases in total sales grew by three percentage points in both periods, to 40 percent in the second quarter and 39 percent in the first half, thanks to rising click-and-collect sales.

Dunelm saw strong demand for furniture products including dining room chairs, coffee tables and sofa collections.

Dunelm CEO Nick Wilkinson said customers responded well to the “value and choice we offer” in a “challenging environment”.

Weak consumer confidence and the glacial pace of interest rate cuts by the Bank of England have depressed demand for household goods and property renovation.

Dunelm has bucked the trend with continued sales growth, which has been partly attributed to range expansion and relatively high demand among younger consumers.

But the company warned that the upcoming rise in national insurance rates, announced in the autumn Budget, represented an ‘additional cost headwind’ and the future trading environment remained uncertain.

From April, employers will pay a 15 per cent levy on annual employee salaries above £5,000, up from the current 13.8 per cent on wages above £9,100.

But Dunelm, which employs 11,500 staff, still expects full-year pre-tax profits to be within the analyst consensus range of £207m to £217m.

Russ Mould, investment director at AJ Bell, said the guidelines appear “somewhat ambitious”.

He added: ‘There is a real risk that Dunelm’s trading will deteriorate in the coming months due to market conditions and through no fault of its own.

“Perhaps it would have been better to look at the prospects with extreme caution rather than hope for the best and then disappoint the market.”

Adam Vettese, market analyst at eToro, said the group “will have to find ways to reduce costs or increase efficiencies elsewhere if they don’t want it to eat into their bottom line.”

As part of efforts to tackle the difficult trading environment, Dunelm has been looking at acquisitions and diversifying its retail offering.

The company recently entered the Republic of Ireland following the acquisition of Hickeys upholstery company Home Focus, acquiring 13 small outlets.

Dunelm, which typically operates a retail park model on the edge of the city, also opened its first Inner London store at Westfield Shopping Center ahead of the Christmas season.

It plans to launch five more superstores in the second half of fiscal 2025.

Boss Wilkinson, who has led the business since 2018, said: ‘As we enter the second half of FY25, we have successfully launched our Winter Sale, which has been well received by customers looking for great value across a wide choice of relevant products for the colder months.

“As we navigate this challenging environment, we see even more opportunities to leverage our unique business model, raise the bar on our proposition and realize our ambitions as The Home of Homes.”

Dunelm shares On Thursday morning they fell 3.3 per cent to 996p, making them one of the biggest fallers on the FTSE 250 Index.

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