The Dunelm share price hit its highest level in over three years in June, but it has come off the boil a little since then.

The group posted solid full-year figures in early September. Pre-tax profit increased by in excess of 23% to £125.9m, which was at the upper end of the £124m-£126m guidance. The final dividend was 20.5p, in addition to a special dividend of 32p. Given that many companies in the retail sector are struggling, there are few firms that are paying out special dividends these days, which highlights Dunelm’s strong performance. Gross margin jumped by 160 basis points.

Dunelm share price lifted by broker upgrades

Since the annual figures were posted, HSBC upgraded Dunelm to a ‘hold’ rating, while Citigroup raised their price target to 680p from 655p. A lot of the positive news that was revealed in September was already known, as Dunelm lifted their outlook in late June – which triggered a string of price target upgrades from banks, and sent the Dunelm share price to a level last seen in March 2016.

In July, the group announced impressive fourth-quarter numbers. Total like-for-like (LFL) revenue for the three-month period jumped by 15.4%, and LFL store revenue rose by 12.1%, while fourth-quarter online revenue surged by 37%. The group is firing on all cylinders as both store and online sales are robust. The surge in e-commerce sales should bode well for the company, as the online division is likely to play a larger role in the group in the years to come.  

Struggling retail sector

This week the British Retail Consortium claimed that retailers had their worst September since records began. In August, the Confederation of British Industry said that retail sales plunged at the fastest pace since the credit crisis. Uncertainty surrounding Brexit has prompted consumers to hold off on spending. The UK jobs market however is in good shape, as the unemployment rate recently dropped to 3.8%, plus wages excluding bonuses are at an above-inflation rate of 3.8%. With the UK's CPI inflation rate at 1.7%, workers are getting a nice increase in real wages. However, the fact that inflation dropped from 2.1% in July to 1.7% underlines the drop in demand.

Dunlem ready to weather Brexit storm

Year-to-date, the Dunelm share price is up over 50%. In the latest update, the group did express concern about the UK’s impending departure from the EU, but it wasn’t overly different from other companies warning about Brexit. It's clear that the broader consumer climate is weaker, but Dunelm has been holding up better than most, and it is in a strong position to weather the Brexit storm, should things get worse from here.

Dunelm reveals its first-quarter trading update on Thursday.

 

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