It takes a bold chief executive to stand in front of investors in the midst of a global pandemic and declare that he has “never been more confident about the future”. Nick Wilkinson, who leads the home retailer Dunelm, did just that last month.
There are reasons why Wilkinson should feel confident. Dunelm has been taking market share from both bricks-and-mortar and online retailers even while most of its stores have been closed — it has kept a handful open for click and collect.
Dunelm’s selections of kitchen equipment and soft furnishings have proved popular with families opting for home improvement during the lockdowns. It is due to report results for the six months to December 26 on Wednesday, and key numbers — such as sales of £719.4 million (a 23 per cent rise year-on-year) and pre-tax profits of £112 million — are already known.
The real interest will be in how it is holding up in the third lockdown. Assuming click and collect offsets about 25 per cent of lost sales from closed stores, total sales for the three months to March are expected to be £200 million, representing a 30 per cent decline — not too bad in the circumstances.
As with all retailers, shares in Dunelm plunged at the start of the pandemic, but they have largely revived and closed on Friday at £12.61, 10 per cent below their pre-pandemic peak last February, giving Dunelm a £2.6 billion value. The shares are 128 per cent above the level when this column last tipped them in September 2018.
Such was the rebound over the summer that Dunelm paid back £14.5 million of furlough costs in October, and has shunned payments from the job scheme ever since.
Dunelm, started by the billionaire Bill Adderley as a market stall 40 years ago, has grappled with pressure from online-only retailers and discounters. But the recent carnage in department stores — including Debenhams — is likely to reinforce its position. While all 174 of its stores are closed to customers, it has kept five staffed for click and collect. Home delivery has been operating as normal.
Dunelm had £141 million of cash at the last count, which should be enough to weather the latest lockdown until non-essential retail reopens. It is also expected to announce on Wednesday that it will resume dividends. Peel Hunt has pencilled in a 7.5p payout worth £15.2 million.
For a retailer once associated with weekend trips to out-of-town retail parks, Dunelm has pivoted neatly towards online sales, and could emerge stronger from the crisis. Wilkinson’s confidence looks nicely upholstered. Buy.
