Dunelm’s share price: What to expect in upcoming earnings

Dunelm's [DNLM] share price has gained 28.26% in the three months to 8 September as it benefits from people spending more on their homes. The initial shock of the coronavirus pandemic was tough for the retailer, however.

In April, Dunelm’s share price plummeted along with sales, which dropped 78% year-on-year, while things only marginally improved in May, with sales down 48% compared to the previous year.  This is no great surprise given that Dunelm’s locations were shut due to lockdown.

With stores open again and a burgeoning online business, should investors be measuring up further gains for Dunelm’s share price, or will the coronavirus have cut earnings down to size?

When do Dunelm's earnings come out?

10 September

Why should investors care about Dunelm's share price?

Home furnishing boom

The increase in people working from home has seen a boom in home furnishing sales as workers look to spruce up home offices. Dunelm certainly plugged in to this phenomenon with sales shooting up 20% year-on-year in June after the retailer reopened its 151 stores at the end of May. July was even better, seeing a massive 59% increase in sales compared to the same period a year ago. 

Just how long can this increased demand continue? Sales in August came in 24% higher than last year — undoubtedly a stellar result but a decline from July’s outsized performance. How much demand mitigates store closures during lockdown could move Dunelm’s share price post-earnings.

Growth in online business

Offsetting the spring’s drop in sales was substantial growth in Dunelm's online business, which grew 105.6% in April, May and June this year. May was the standout month, seeing a 141% increase in sales, while June saw a 121% jump. The retailer has said that it plans to pump £8m into its online platform next year, along with investment in its supply channels to meet its ‘high growth ambition’ for the area.

“The decisions we have made over the last few months have been guided by our principles and values and we are emerging from this unprecedented period as a stronger business. This has given us the confidence to accelerate our digital transition and introduce new ways of serving our customers,” commented Nick Wilkinson, CEO at Dunelm.

“The decisions we have made over the last few months have been guided by our principles and values and we are emerging from this unprecedented period as a stronger business. This has given us the confidence to accelerate our digital transition and introduce new ways of serving our customers” - Nick Wilkinson, CEO at Dunelm

Investors should watch out for any news on how this transformation is going. Since the coronavirus has seen more people start shopping online, Dunelm’s share price stands to drop if the retailer falls behind the curve in this area.

What should investors expect for Dunelm’s share price?

Dunelm has already warned that it expects profits to drop £21m this year due to the pandemic. The retailer now expects annual profits to come in between £105m and £110m, compared to £125.9m last year.

In addition to closures, the costs of kitting out its stores to implement social distancing measures will weigh on the bottom line. However, if the retailer manages to beat its own guidance, then Dunelm’s share price could gain post-earnings

Dunelm share price vitals, Yahoo Finance, 9 September 2020

So, time to buy Dunelm?

Dunelm’s share price has benefited from increased home spending driven by lockdown, but such demand could be short-lived.  The UK is in its deepest recession in a decade, and further lockdowns could see Dunelm shut up shop once again. Any guidance the retailer can offer on its long-term strategy to operate in the ‘new normal’ will go a long way to reassure investors.

Dunelm’s share price carries an average 1,265p target from the analysts tracking it on the Financial Times, which would represent a 16.06% downside on its price as of 8 September’s close. For income-seeking investors, Dunelm is expected to pay out an 8p dividend this year, down from the 28p seen in 2019.