DNLM's sales shrunk 1.8% to just under £200m
Companies: Dunelm Group plc
Leading home retailer Dunelm (LSE: DNLM) released a clear but mixed trading update this morning covering the last quarter's activity. Total sales shrunk over the period by 1.8% to £198.7m as Management highlighted the "unusually warm weather had a dampening effect on store footfall".
Helpfully the update breaks down the change in revenues by LFL stores, home delivery (ie online), and non-LFL stores. Sales from stores make up the bulk (c. 93%) of Dunelm's trading and this experienced a pretty significant 9.4% fall year-on-year on a like-for-like basis. Online was up an encouraging 18% year-on-year but given it is a much smaller piece of the pie it doesn't offset the drop in store revenue.
On a positive note, there appears to be no impact on margins as yet following the Brexit-related FX moves:
"As yet we have not seen any material impact from adverse foreign exchange markets in relation to goods sourced directly or from third parties."
After a pause in new store roll-outs during the quarter, Dunelm will be opening another 10, of which 9 will open this financial year. It currently has 152 stores so that's a c7% increase.
Looking at the Balance Sheet, net debt was £83m on the 1st October and averaged £76.5m over the quarter. Given EBITDA was £154m last year that's a very healthy ratio of 0.54x net debt to EBITDA. Dunelm has a strong balance sheet which, if anything, could be more geared should Management wish to accelerate the rollout of new stores.
"As expected, the homewares market has fallen due to unusually warm weather and this has correspondingly impacted our store performance over the period given the reduced footfall to our out-of-town superstores...
...We are looking forward to a stronger second quarter as we continue to invest in extra seasonal space, new till systems, store refits and new store openings. We should also benefit from weaker comparatives.
We continue to focus on our key initiatives whilst ensuring we maintain our unique offer of tremendous value for money, combined with an unrivalled range and great service." said CEO John Browett."
Its shares have opened down 5% this morning which is to be expected given the poor LFLs. Based on 2016 EPS, it's trading at a 16x earnings multiple, or a 6% earnings yield.
Given its propensity to pay out special dividends and its strong balance sheet it should be on investors' watchlists on days like this.
