Dunelm shares appear to have reacted positively to the improved outlook at Maisons du Monde (“MdM”, Not Rated), despite MdM operating in different markets. Even so, we would still highlight that MdM’s outlook remains sobering, with new guidance implying 2YoY LfLs and margins will be down significantly for the remainder of the year. We retain our Sell on Dunelm. Brief summary of MdM Q3 trading, (3 months ended September) Q3 LfL sales were -3% (+6% vs FY19) having been +35% during H1 (+12% vs FY19) following tough comparatives in Q3 last year. Growth was driven by online in France and stores abroad. Most significantly, the full year outlook improved with management now expecting total full year sales growth of “up in low teens” (previously “up high single digit”) and, despite management highlighting visible cost pressures, FY EBIT margins are now expected to be between 9% and 9.5% vs previous guidance of +50bps at 7.9%; we note EBIT margins were up materially in H1. Read-across/our view Whilst MdM operates in different markets, Dunelm shares appear to have responded positively. It might be argued that given MdM’s improved outlook, the trend towards home improvement that arose during the pandemic is being sustained in Europe and that industry-wide global supply chain issues are no worse than feared. Can the same be said for the UK? We would remind investors that whilst the outlook at MdM has improved, new guidance still implies that 2-year LfLs will be down by around 10% in Q4 with 2-year EBIT margins down 290bps in H2 (versus c.-540bps previously) - see overleaf for further details. On this basis, MdM management clearly expects the trend towards home improvement is likely to normalise closer to pre-pandemic levels and that margins will sharply deteriorate in H2 owing to cost pressures. Conversely, at Dunelm, consensus assumes LfLs will grow c. 8% this year (with further moderate growth thereafter) - despite a bumper FY21 when LfLs were up c.26%, implying LfLs are up significantly on a two year view. We continue to believe that such expectations are demanding if spending on home improvement begins to normalise back to pre-pandemic levels, as consumers likely switch spending back to leisure. We note there are already signs of ‘lockdown winning’ categories seeing slowing growth, as evidenced in BRC data and recent results reported by, inter alia, ASOS, boohoo, AO World and Next Homewares. See our recent initiation report (Navigating around a cul-de-sac, 07/10/2021) for further details.