Dunelm Group Plc – Q3 Trading Update

Dunelm Group plc

Third quarter trading update

Dunelm Group plc (“Dunelm” or “the Group”), the UK's leading homewares retailer, reports on trading for the 13-week period ended 27 March 2021.

¹ Digital includes home delivery, Click & Collect (Reserve & Collect before October 2019) and tablet-based selling in store.  Q3 and YTD FY21 digital % impacted by closure of store estate throughout most of the quarter.

Revenue

Total sales in the quarter of £236.6m demonstrated the resilience of the Dunelm model during a period when the majority of our store estate was closed to customers.  Our digital sales have more than trebled since the same period last year, enabled by ongoing enhancements to the customer experience and our operational capabilities.  The strength of our digital proposition, operating through home delivery and Click & Collect services, allowed us to cover over 83% of prior year sales.

We began the quarter on 27^th December 2020 with 80 stores closed to customers, then increasing tiered restrictions led to further closures at the start of the new calendar year and the entire estate of 174 stores was closed by 5^th January 2021. 

We have been permitted to offer Click & Collect services during the closure period in all stores, with the exception of five stores in Northern Ireland.  Click & Collect has allowed us to cover approximately 35% of prior year store sales, with our customer net promoter score of 83% demonstrating the positive response to our proposition.

Whilst we are pleased with our performance during the quarter given the restricted trading conditions, we note that the homewares market² has continued to remain strong.  As a result of our retail estate being closed, we have underperformed the market during the quarter, reflecting that other retailers selling homewares have been classified as 'essential' and have remained open.

2 Homewares market excluding Dunelm calculated using GfK data and management estimates.

Gross margin

Gross margin in the quarter increased by 30bps compared to Q3 FY20, mainly due to the reduced scale of our Winter Sale as a result of store closures.  On a year to date basis, gross margin has improved by 50bps compared to the same period last year.

Assuming stores re-open as expected and there are no further disruptions this financial year, we expect that gross margin in the fourth quarter will be ahead of the same period last year given that the prior year period was disrupted by the store closures in the first national lockdown.

Balance sheet

As at 27 March 2021, the Group had net cash of £40.2m (FY20 Q3: £36.4m net debt) and access to £175m of approved banking facilities which remain unutilised.

During the quarter, there was a working capital outflow of approximately £90m, reflecting the reversal of exceptional inflows from FY20 as previously guided.

We continue to see some minor disruption within our global supply chain, in line with the broader retail sector.  However we continue to build our inventory levels and are well placed to service customer demand when our stores re-open.  As at 27 March 2021 our inventory balance was £193m (FY20 Q3: £147m).

Business update

Whilst our operations were significantly impacted by Covid-19 throughout the quarter, our teams remained focused on innovating and improving our customer proposition as well as supporting the significant growth in our home delivery and Click & Collect operations.

We extended our Click & Collect offering with a successful trial of centrally-fulfilled inventory; this has now been rolled out to 160 stores and offers increased range and availability.  We have also launched an improved in store tablet based selling tool ready for the re-opening of our stores.  

Reflecting our continued commitment to invest in new store and refit programmes, our newest store in Newcastle-Under-Lyme and our refurbished and extended store in Banbury will open next week in line with the lifting of restrictions.  The Newcastle-Under-Lyme store will feature a 'Make & Mend' department, to encourage product repair and re-use, as well as an extended home decorating offer.

Our 13 stores in Scotland opened this week on 5^th April and we anticipate that the 156 stores in England and Wales will re-open on 12^th April.  We expect to offer Click & Collect services in Northern Ireland from 12^th April but await guidance as to when those stores can fully re-open.

Outlook

We are anticipating a strong consumer response to the lifting of the restrictions; our stores are well stocked and ready for re-opening and our colleagues are excited to welcome customers back.  Given the unusual circumstances, there is still a range of potential outcomes for FY21.  However, assuming that the majority of our stores open as expected on 12^th April and there are no further Covid-19 restrictions this financial year, we expect to end the year modestly ahead of the top of the current range of analyst expectations³.

³ Management understand the range of analysts' estimates (which have been updated since the January trading statement on 14^th January 2021) for FY21 Profit Before Tax (PBT) is £120m-£125m.

Comment from Nick Wilkinson, Dunelm's Chief Executive Officer: 

“In a quarter when we were largely unable to open our stores, it has been very encouraging to see the strength of our digital channels which have enabled us to cover over 83% of sales from the same period last year.  This resilient performance is testament to the commitment and dedication of our teams, who continue to adapt and innovate the Dunelm customer proposition. 

“We are now looking forward to re-opening, with colleagues ready to welcome back customers through our doors.  We have worked hard to rebuild inventory levels and our stores are well stocked across our extensive product range.

“The entire Dunelm team is excited to be able to offer our full proposition once again.  With all stores soon to be fully open, combined with our ever improving digital offering, we look forward to helping our customers to create a little more joy in their homes and gardens this summer.”