# Dunelm Group Update on trading and Coronavirus

- Link: https://www.directorstalkinterviews.com/dunelm-group-update-on-trading-and-coronavirus/412809722
- Published: 2020-03-24T07:32:48+00:00
- Author: Giles Arbor

**Dunelm Group plc** (LON:DNLM) said today that in light of the rapidly changing
developments regarding COVID-19, it has provided the following update (which will
replace the scheduled third quarter trading statement).

**Protecting our colleagues, customers, suppliers and shareholders**

Dunelm is a successful business that has been built over 40 years on the foundations
of strong values and close relationships with our colleagues, our customers, our
suppliers and our shareholders. In these unprecedented times, our key business principles
of ‘do the right thing’ and ‘long-term decisions’ are even more important to guide
our decision making.

We have been working closely with our colleagues to assess the risks that they and
our customers were facing from the COVID-19 outbreak across our business and day
to day operations. Yesterday, we had made the decision to close our stores to customers.
At that point, we had intended that our stores would continue to offer services 
to their communities, both as contact-less collection points for Click & Collect
orders, and to perform activities which supported local people, such as befriending
services and local deliveries to the vulnerable. However, the announcement by the
Prime Minister last night has led us to review our approach and we are intending
to temporarily close down all of our customer facing operations today in order to
understand and comply with the new restrictions and guidelines.

We had already taken significant and decisive actions to support the most vulnerable
and lowest paid colleagues in our business, and now we will go further to support
the national effort to defeat this pandemic.

At the same time, we have also taken actions to protect the cash resources of the
business (which are detailed further below). This includes our decision to cancel
the interim dividend, which was due to be paid in April. Our capital policy is unchanged
and we remain committed to returning surplus cash to our shareholders. In light 
of the extraordinary circumstances, the Board believes it is important to retain
the cash in the business until further certainty is gained.

Notwithstanding the latest government guidelines, we remain determined to ensure
that we use these challenging times to develop a stronger proposition for our customers
which will ensure that when this pandemic is over, we have an even better business.

**Financial position**

Dunelm Group has access to £175m of financing facilities through a committed RCF
of £165m (maturing in March 2023) and a £10m overdraft.

As at 21 March 2020, our net cash position was £11m, comprising a drawdown of £14m
against our RCF facility and £25m cash.

The Board has taken the decision to draw down in full against its RCF given the 
heightened levels of uncertainty and will place surplus cash on deposit. The Group
continues to expect that it will satisfy its covenant requirements at the FY20 year-
end.

**Short-term actions to support cash flows**

Further to the decisions noted above, the Board has taken immediate actions to protect
the cash flows of the business. These actions include reducing capital expenditure
and all non-essential operating costs as appropriate.

We are in close contact with our suppliers and are managing our stock requirements
in light of latest trading information. We are also liaising with our landlords 
to improve our rent payments schedule. Our board of directors have agreed to either
waive their non-executive fees or to take a reduction in their executive pay for
the next three months.

Additionally, we have taken into account the latest guidance from the government
regarding their intentions to support businesses through this crisis. Our cash flows
will benefit from the business rates holiday (effective 1 April 2020) and the deferment
of VAT and corporation tax payments.

We expect to utilise the government Job Retention Scheme to help fund the pay of
our colleagues who may no longer be able to work in the business and we are exploring
the scheme which provides additional funding options for corporates.

The situation is very fluid, and we remain focused on balancing the right actions
for both the short and longer-term.

**Trading update**

For the first ten weeks of the third quarter (ended 7 March 2020), total like-for-
like (LFL) sales were up 6.5%. This was a good performance given the strong comparative
from Q3 FY19 (+12.5% total LFL). Over the ten weeks, LFL stores were up +2.4% and
Dunelm.com was up +31.9%. Total growth, including the benefit of new store openings,
was 7.9%.

During this period, gross margin also continued to improve year on year, in line
with the levels observed in the first half of the financial year.

However, over the past two weeks (ended 21 March 2020), we have seen a progressively
negative impact on our trading as a result of the COVID-19 pandemic, with total 
LFL sales down 8.8% driven by reduced footfall to our physical stores. Our online
business continues to grow and in recent days, as store footfall has fallen further,
we have seen a material increase in online demand.

**Outlook**

Prior to the recent downturn, the Group was performing well and in line with our
expectations. However, given the uncertain backdrop, we do not think it is appropriate
to give financial guidance for FY20 and beyond.

The Board remains confident in the strategy over the longer term and believes Dunelm
will continue to build on its market leading position.

> **Comment from Nick Wilkinson, Dunelm’s Chief Executive Officer:**
> “These are unprecedented times, but Dunelm is a strong business which has been
> built over 40 years on the foundations of close relationships with our customers,
> colleagues, suppliers and shareholders. Our business principle to ‘Do the right
> thing’ is more important than ever in the current situation.
> “We have a very strong team in place who are adaptable and committed to ensuring
> the long-term success of the business. We are navigating the challenges of this
> situation, acting in the interests of all our stakeholders, and doing the work
> necessary to ensure that we come through this crisis in a stronger position and
> with a better business for the future.”

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