A recent report in The Times that Dunelm had enjoyed strong trading over Christmas and was on course to report a healthy increase in annual profit attracted some intrigued online comments from readers.
How, one asked, could this retailer be shaking off the malaise that has gripped other traders, particularly when it has to bear the high cost of a bricks-and-mortar estate? Amid the musings came an observation: “Simple — they sell stuff that people need. Goods are of an acceptable quality and price.”
Dunelm has been among the most resilient of the retailers, many of which have been pummelled into profit warnings and store closures as a result of the rise of online shopping and against a backdrop of weak consumer confidence. Could its secret really be that simple?
Dunelm was founded by Bill Adderley and his wife, Jeany, as a market stall selling curtains in 1979, opening its first shop in Leicester in 1984 and its first superstore in 1991. Dunelm has since expanded its range of products, from soap dishes to rugs, beds to sofas. The company has more than 9,500 staff across more than 170 stores and an annual turnover of more than £1 billion. The couple’s son Will, 47, is Dunelm’s deputy chairman and the family owns just under 45 per cent of the shares.
Life for this retailer wasn’t always so sweet and part of Dunelm’s success can be attributed to the arrival two years ago next month of Nick Wilkinson as chief executive, joined in late 2018 by Laura Carr, 44, as finance director. Mr Wilkinson, 53, took over a company that seemed to have been losing the battle for consumers’ attention. Profits were falling and it was struggling to incorporate Worldstores, a loss-making internet business that it bought in 2016 for £8.5 million.
The new boss moved quickly, simplifying the product range and reminding customers about its credentials as a value retailer. Mr Wilkinson also addressed Dunelm’s various online offerings, joining them under one of the Worldstores systems in a process that was completed late last year.
Their actions led to healthy rise in like-for-like sales, up 10.7 per cent over the year to the end of June, and an even healthier recovery in profits, up 35.2 per cent to £125.9 million.
In short, in retail it really is as straightforward as selling shoppers what they want, affordably — although in fairness Dunelm’s success is not all management magic. If the new team’s secret was its ability to chime with consumers and improve shoppers’ online experiences, Dunelm had a relatively strong hand already in the positioning of its store estate, predominantly in retail parks. These locations have been more resilient than the high street, especially on rainy days. Helped by the retailer’s short leases, Dunelm relocated some shops and prioritised opening superstores.
The group also has been propelled forward by consumers’ increased fondness for home makeovers and by Instagram influencers featuring its products in their posts.
The success has continued apace, not least over the crucial Christmas trading quarter, during which like-for-like sales gained 5 per cent. Impressively, its increases are now lapping previous strong comparable figures. Last year it paid out its first special dividend in three years.
Dunelm’s shares, up 15p, or 1.4 per cent, at £11.09 last night, have risen by 70 per cent over the past year. Despite that, they are not yet overly expensive, trading at 19 times Peel Hunt’s forecast earnings and carrying a dividend yield of 2.8 per cent. There’s every reason to expect more to come.
Advice Buy
Why Hugely revitalised and resilient, with improving margins and first-class online offering, and more to give
Morgan Advanced Materials
Life became distinctly tougher for Morgan Advanced Materials last year as cyclical downturns in some of the industry sectors it serves began to bite. A 3.2 per cent increase in revenues for its 2018 financial year slowed to growth of only 2.2 per cent during the first half and to only 0.2 per cent over the first nine months of last year.
Yet the true test of a company so closely entwined with the ebbs and flows of global industry is how it makes the best of them — and here the FTSE 250 group has credentials that stand it in good stead.
Morgan Advanced Materials traces its roots to 1856 and the Patent Plumbago Crucible Company, which made graphite vats used in molten metal furnaces. After changing its name to Morgan Crucible, it was listed on the stock market in 1890.
It changed its name again in 2013 to reflect its move into higher-precision materials. As well as products to house molten metals, it makes seals and bearings, carbon brushes and ceramics that are capable of enduring extremely high temperatures. While about 48 per cent of its revenues come from traditional industrial sectors, its products are widely used in an array of other areas, from healthcare to transport to energy, making diversity one of its key attractions.
Last year the thermal products division suffered in the slowdown in the European industrial sector. Revenue fell by 3.8 per cent to £232.5 million during the first half, although the decline slipped to 3.5 per cent over nine months. Carbon and technical ceramics, which services the wind turbine and semiconductor markets, among others, fared much more positively.
In its favour, the group has prepared its defences well, sharpening up sales teams, increasing spending on research and development and co-ordinating its activities as a global group. Shares in Morgan Advanced Materials, tipped as a “buy” at 257p by this column in May, have recovered strongly since late October and yesterday they rose 1½p, or 0.5 per cent to 313¾p. The stock trades at 11.6 times Investec’s forecast earnings for a dividend yield of 3.6 per cent. Those investors who bought in May should hold on.
Advice Hold
Why With the industrial cycle set to turn, the shares should recover even further
