Q3 trading update, 13 weeks ending 30th March 2024 Q3 sales growth was £435m, +3% YoY (+9% 2YoY, +53% 4YoY) versus growth of +1% YoY (+19% 2YoY, +50% 4YoY) at Q2. (Visible Alpha Consensus Q3 sales growth expectations: +2%). Management describes the homewares and furniture markets as having been ‘challenging in the period’ and that trading conditions have continued to be ‘volatile’, with March seeing softer levels of demand. As anticipated, FX headwinds and lower freight rate benefits mean that Q3 gross margin gains have moderated to 60bps YoY (H1: +160bps YoY), albeit a touch ahead of previous implied H2 gross margin guidance to be up 40bps YoY. Consequently, in spite of Red Sea surcharges, full year gross margin guidance has been upped to +110bps (previously: +100bps). In the meantime, management is on track to hit its store opening target for FY24, with 4 new stores open to date and a further two (including one relocation) planned to open by the end of the year. Elsewhere, management has managed Red Sea disruption such that availability has remained ‘generally’ strong. Outlook: Management believe conditions remains difficult to predict but that it expects FY24 PBT to be ‘broadly’ in line with market expectations (company-compiled consensus FY24 PBT: £202m, range £200m - £205m). View Is 3% good enough at Q3? Typically, Q3 sales tend to be on average 8% below Q2 sales at Dunelm, which implies sales growth today should have been c.+5% and there is no evidence of demand being pulled forward into Q2. Furthermore, following today’s result, Q4 required sales growth is +8% YoY to meet full year expected sales growth of +5% YoY. While increased gross margin guidance is pleasing, don’t forget that opex guidance (-100bps YoY) could prove a stretch given it implies that YoY growth needs to slow to c. 6% in H2 having been +9% in H1. We note that c. 40% of opex relates to wages, which are growing at over 10% across the industry. We remain wary of the ‘super normal’ sales growth experienced by Dunelm since the pandemic. And we feel that the tone of this statement feels ‘soft’. The valuation, on 13.6x FY25E PE, offers little room for disappointment. HOLD maintained.