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Dunelm Group PLC

Dunelm Group plc fourth quarter revenue increased by 15.4%

Dunelm Group plc (LON: DNLM), the UK’s leading homewares retailer, reported today the following trading update for the 13-week period ended 29 June 2019.

Revenue

Total like-for-like (LFL) revenue for the fourth quarter increased by 15.4%, reflecting strong underlying growth in stores and online, the benefit of a weak comparator period last year and favourable weather this year.

  • Q4 LFL store revenue increased by 12.1%
  • Q4 LFL online revenue on Dunelm.com continued to grow strongly in the quarter, up 37.0%
 13 weeks to 29 June 2019  52 weeks to 29 June 2019  
 RevenueYoY Growth (£m)YoY Growth (%)RevenueYoY Growth (£m)YoY Growth (%)
(£m)(£m)
LFL Stores1205.522.212.10%883.862.97.70%
LFL Online – Dunelm.com23910.537.00%140.236.435.10%
Total LFL244.532.715.40%1,024.0099.310.70%
Non-LFL Stores319.64.972.913.4
Total Dunelm264.137.616.60%1,096.90112.711.50%
Non-LFL Online – Worldstores4-103.5-62.4
Total Group264.127.611.60%1,100.4050.34.80%

Comment from Nick Wilkinson, Dunelm Group Chief Executive Officer:

“In the year that Dunelm turned 40, we are delighted that both new and existing customers continue to respond positively to our evolving offer. The strong growth in the final quarter, and the year as a whole, demonstrates that in a rapidly changing marketplace, the broad appeal of Dunelm’s purpose ‘to help everyone create a home they love’ is resonating well.

“We continue to invest in the business, particularly in strengthening our digital capabilities and reaching more customers through our brand marketing initiatives.

“Looking forward, as the UK’s leading homewares specialist, we see significant opportunity for continued growth both from our stores and online, whilst maintaining our improved operational discipline. In the short-term, we remain cautious about the uncertain political climate and the impact it may have on consumer spending, but expect to make further progress in the year ahead and are confident about the Group’s longer-term prospects.”

  1. LFL Stores – stores trading for at least one full financial year prior to 1 July 2018 without any significant change of space. LFL stores revenues include Reserve & Collect sales, and home delivery sales in respect of orders placed via in-store tablets
  2. LFL Online – Dunelm.com (excludes Reserve & Collect sales, and home delivery sales in respect of orders placed via in-store tablets)
  3. Non-LFL Stores – new stores (including relocations) opened in the current or previous financial year, and existing stores with significant change of space in the current or previous financial year
  4. Non-LFL Online – Worldstores.co.uk, Kiddicare.com and Achica.com (these websites are now closed)

Gross Margin

In the fourth quarter, gross margin increased by approximately 240bps at Group level. Core Dunelm margin improved by 200bps in the quarter, driven by better sourcing and a lower level of end of season clearance compared to the same period last year. Sales from the Worldstores businesses were a smaller proportion of total revenues in Q4 FY18, and therefore the positive margin impact of closing these dilutive websites was reduced to 40bps in the quarter.

For the full year, we expect total Group margin to have improved by approximately 160bps, with core Dunelm margin improving by around 100bps.

Overall Financial Performance

We expect full year profit before tax to be towards the upper end of the range of £124m – £126m announced in the trading update on 20th June 2019 (FY18 underlying PBT: £102m).

The group continues to be highly cash generative. As at 29 June 2019, net debt was £25.3m (FY18: £124.0m) and weekly average net debt during the second half of the year was £20.6m. Net debt was lower than expected due to higher operating profits, positive working capital management and the timing of capital investment at year end.

Business development

We are continuing to progress the phased roll-out of our new digital platform. We will fully transfer onto the new platform during FY20, proceeding carefully through the beta phases in order not to disrupt the strong growth on the existing website.

During the quarter, we continued to invest in raising brand awareness. A re-run of the ad-funded Back to Mine programme on ITV1 in April and additional marketing spend in May gave us a strong run in to our Summer Sale campaign. Our sponsorship of This Morning continued throughout the period.

There were two new store openings towards the end of the quarter (including one relocation), increasing our store footprint to 170 superstores. We expect to open two new stores (including one relocation) in the first half of FY20.

FY20 accounting and tax update

We will implement IFRS 16 ‘Leases’ for the financial year ending 27 June 2020 (FY20). We anticipate that this new standard will result in a reduction of profit before tax of approximately £3m, with no cash impact. EBITDA is expected to increase by c. £50m. We will provide detailed guidance on the impact of the new standard in the preliminary results in September.

Additionally, once the new digital platform is fully launched, we will expense the majority of digital development costs in the P&L (previously capitalised as we went through the build phase). This change reflects that once the platform is fully operational, the digital development team will be constantly improving the customer experience and therefore it will be more difficult to attribute these costs to separately identifiable future economic benefits. We estimate this additional cost in the P&L will be approximately £5-7m in FY20; this is in line with our previous expectations. We note that the total cash spend (capex and P&L opex) for Technology will remain broadly in line with FY19.

Due to changes in tax legislation, there will be a one-off adverse cash tax payment in FY20 relating to the acceleration in the timing of corporation tax payments on account. This change will result in the Company paying the equivalent of 18 months of corporation tax in FY20. There will be no P&L impact.