The Dunelm share price initially rallied but then turned sharply lower this morning after the company registered impressive annual numbers. Profit-before tax jumped by 23.4% to £125.9m, which was at the upper end of the guidance of £124 to £126m, so the group measured up to the optimistic outlook.
Dunelm’s dividend stands out for shareholders
The company had a generous cash return to shareholders as the final dividend was 20.5p, and the special dividend was 32p. In the current consumer climate we are seeing many retailer firms struggling, and a special dividend really stands out. Gross margins improved by 160 basis points, and this also makes Dunelm an outlier in the retail industry, and it underlines their successful strategy.
Of course the company didn’t want to get ahead of itself, as it issued the obligatory cautious outlook. The UK is on the cusp of leaving the EU, and it remains a massive unknown as to what the economy will look like in a few weeks.
But given that Dunelm saw a 10.7% increase in total like-for-like (LFL) annual sales, the group should be in a better position than most retailers for any cut backs in spending. Investors will be keeping an eye on the Dunelm share price going forwards, to see if this is taken into account.
Positive Q4 numbers support Dunelm share price
Much of today’s positive news was already known and priced into the Dunelm share price, as the group revealed fourth-quarter numbers in July. Total 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%.
These figures were impressive for a couple of reasons, firstly, many high street shops are struggling so Dunelm is outperforming on that front, and secondly, the jump in e-commerce activity points to a business that is keeping up with the times. Dunelm is one of a few UK retailers that are outperforming the wider sector.
Brexit continues to weigh on consumer sentiment
The uncertainty in relation to Brexit is weighing on consumer sentiment, and that has prompted some retailers to become savvier, and that ties in with e-commerce as bargains are more likely to be found online.
Brexit has been dominating the headlines in recent months, and but there are some aspects of the UK economy that are in good shape. Unemployment is near the lowest level in decades, wages are strong, and they are comfortably outstripping inflation so workers are getting a real increase in wages, but still, spending is tapering off.
With Brexit uncertainty increasing, things are likely to get worse on the consumer front before they get better, as the prospect of a general election could throw a spanner in the works, and this could impact on the company’s prospects and the Dunelm share price.
Dunelm’s drive for e-commerce should stand to the group in the long run, as it is clear the high street can’t compete with the online space. Seeing as e-commerce costs less, and there is a distinct change in consumer habits, the online division is likely to make up a larger portion of the group’s revenue in the years to come.