Q2 trading accelerates: We have been impressed by the meaningful acceleration in Q2 sales growth at +18% YoY (+48.8% 3YoY) versus Q1: -8% YoY (+36% 3YoY). Dunelm appears to be defying trends set by other “pandemic winners”, maintaining sales momentum despite tough comparatives (see Figures overleaf). Even after adjusting for the timing of the Winter Sale in Q2, we estimate underlying LfL gross profits improved from being down c. 8% YoY in Q1 to +8% YoY in Q2. … and Q2 momentum is likely to continue: We see little reason why the Q2 momentum will stall either. There appears to have been no “demand pull-forward” event accounting for the acceleration, indeed, management continues to highlight (at the interims) that growth has been broad-based across all categories and channels. Despite the broad-based trend of shoppers returning to physical stores, Dunelm’s digital sales were particularly strong in the run-up to Christmas. We also note that growth (for the 12 months to December 2022) appears to be broadly split between increased purchase frequency as well as active customer growth, with the latter likely to drive further repeat business. The addition of 10k SKU in H1 is also likely to continue to attract new customers in H2 as well, in our view. Proposition intact: We have previously harboured fears that Dunelm’s proposition was lacking. Yet once again market share is up- +160bps YoY in homewares (for the 12 months to December 2022) - with decent market share gains in both mature and immature categories. As such, management now believes there is still significant runway to increase market share further, with investment into digitalisation helping to drive further sales growth. Valuation: While the shares have enjoyed a decent re-rating of late, we believe sentiment is likely to be driven by further upgrades. In the meantime, Dunelm offers a total dividend yield of 7.1% this year and earnings growth of c. 6% p.a. (FY23E- FY25E), meaning the valuation is undemanding.