Dunelm set for further progress

Dunelm

Last year was a good one for furnishings and homewares retailer Dunelm (LON: DNLM) and on Thursday it will reveal how well it has fared in the first quarter of this financial year.

The signs were positive when the full year figures were published. Active customer numbers are growing both in the stores and online. The rate of this growth in the first quarter will be interesting because it will have a strong bearing on growth this year.

First quarter like-for-like growth in store sales is expected to be 3.5%, but it could be even better. The full year comparatives are tough and like-for-like store sales could end up flat, particularly with the current economic uncertainty.

Online

Online sales could be 15% ahead in the quarter, but again the growing active customer base could mean that the figure is even better. At the moment, online is forecast to grow by 15% for the year as a whole.

Online is still relatively small compared with retail stores, but it will become much important if these growth rates continue.

Forecasts

It should be remembered that the first quarter is the least important quarter in terms of trading, so there is limited guidance in the figures for the full year outcome.

The special dividend of 32p a share means that net debt could go back up from £25.3m to around £70m by the end of June 2019, but the business remains highly cash generative.

Analysts are likely to be cautious about the full year outcome for the time being at least. Underlying pre-tax profit is expected to improve from £125.9m to around £132m. At 820.5p, the shares are trading on just over 16 times prospective earnings and the forecast yield is 4.1%.

Dunelm has shown that it can beat forecasts and that trend could continue with upgrades during the year as there is more visibility about the economy and trading.

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Andrew Hore
Andrew Hore is the publisher of AIM Journal, which is an online monthly publication covering the Alternative Investment Market.