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Dunelm (DNLM) share price forecast: where next for the UK retailer?

By Rob Griffin

14:40, 16 September 2021

Dunelm (DNLM)
Source: Shutterstock

Dunelm, a leading UK homewares retailer, has had a good year so far. Not only has its share price touched highs of £16 apiece, but sales and profits have also rocketed.

The company was a standout performer during the Covid-19 pandemic as it reaped the benefits of investing in slick digital operations.

These online sales helped push pre-tax profits up 44.6% to £157.8m in the year to 26 June 2021, while revenue rose 26.3% to £1.3bn, according to the company’s latest earnings report

Investors have benefitted from the uptick in fortunes. While the company didn’t pay any dividends in respect of the full year 2020, it has embraced payouts this year.

A final dividend of 23p-per-share was announced earlier this month (September), which took the full year ordinary dividend to 35p-per-share. It also announced a special dividend of 65p-per-share.

What’s next for the UK retailer? Is there room for further growth for the rest of the year? Read our Dunelm share price forecast and see what the analysts say.

Dunelm share analysis: upbeat sales against the economic backdrop

The share price journey of Dunelm has been something of a rollercoaster ride over the past year as the market contrasted upbeat sales figures against the economic backdrop.

This has seen Dunelm’s stock trading around £11-per-share at its lowest point and as high as £16-per-share at its peak.

During 2021, shares were at their strongest in mid-May, before falling away again over the summer – despite the company announcing revenue growth

Concerns over the potential impact of industry-wide issues, such as worker shortages and cost-push inflation hitting its supply chain, had a negative effect on its share price.

Investors were also concerned that the company’s plans to invest further in the business, including the creation of two new distribution facilities, could put pressure on its margins. Georgina Brittain, manager of the JPMorgan Mid Cap Investment Trust, noted the impact of the share price performance in her fund commentary at the end of July 2021.

“An overweight position in Dunelm Group, the UK-listed homewares retailer, detracted from relative performance over the month,” she wrote. “The shares underperformed despite a strong full-year trading update, with profit before tax ahead of analyst expectations.”

Dunelm was also highlighted in the half year report of the Schroder UK Mid Cap Fund, covering the six months to the end of March 2021. The fund’s co-managers, Jean Roche and Andy Brough, said a management share sale during the period added to the pressure, as did a period of pandemic-related store closures. This resulted in weaker-than-expected sales in the January-March 2021 period.

“However, the company has since reported that since stores have reopened, sales are +59% compared with 2019, and that it is winning market share, proof that the combination of stores and a strong online offer is key in the new retail battleground,” they added.

Dunelm

Dunelm’s fundamentals: latest earnings

Dunelm reported strong sales growth of 26.3% for the 52 weeks ending 26 June 2021 – despite stores being closed to customers for more than a third of the financial year. The company stated that digital sales grew by 115% in the period, which included a significant expansion of its Click & Collect offering.

This overall increase meant digital sales, which includes home delivery, accounted for 46% of sales – up from 27% the previous year.

The company also revealed active customer growth of 8.5%, which it attributed to strong growth across digital channels.

Dunelm reported a free cash flow of £108.5m, including working capital outflow of £35m, with net cash at period end of £128.8m.

The retailer also reaffirmed its commitment to a Net Zero Pathway, targeting a 50% reduction in greenhouse gas emissions by 2030.

 Dunelm financial performance

Dunelm’s strength and resilience

The performance illustrated the “strength and resilience” of its business model, according to Nick Wilkinson, Dunelm Group’s CEO.

“We have renewed purpose, bold ambitions and an increased opportunity to attract more customers and grow their frequency,” he said.

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Wilkinson acknowledged the macro-outlook was uncertain, with industry-wide issues such as supply chain disruption, inflationary pressures from raw materials, freight costs and driver shortages.

However, he insisted the company was “well-placed” to continue managing these challenges.

“Trading in the first ten weeks of the new financial year has been encouraging, with growth against strong comparatives and continued market outperformance,” he said.

Looking ahead, the management expects full-year 2022 pre-tax profits to be “modestly ahead” of the top range of analysts’ expectations, which are between £153m and £175m.

Russ Mould, investment director at AJ Bell, has praised the company’s management team for steering it through a challenging period during Covid-19.

“Dunelm is one of those companies that has been in the right place at the right time during the pandemic and run so well that it has made the most of the opportunity,” he told Capital.com.

This was highlighted when its physical stores were forced to close.

“Dunelm’s strong online offering has helped keep customers happy as they have spent money on home furnishings and comforts rather than holidays or going out,” he said. 

He also pointed out that the management’s declaration of a special dividend – its fourth since 2015 – is an indication of the Board’s confidence in the future.

“Investors who own the stock will no doubt be tempted to roll with this positive momentum, although those who do not could be forgiven for wondering whether they have already missed a trick here,” added Mould.
 

Dunelm (DNLM) share price forecast: analyst sentiment

According to John Stevenson, an analyst at broker Peel Hunt, Dunelm’s focus on the core offer and customer is yielding huge results with a growth in active customers and market share. 

He also points out that strong cash generation underpins ongoing ordinary and special dividend payouts to investors.

 “Digital developments continue to accelerate and we remain confident the group will continue to take market share over the coming years,” he said.

However, AJ Bell’s Russ Mould has raised potential concerns. “A forward price/earnings ratio of more than 20 times earnings for fiscal 2022 and 2023, based on consensus analysts’ forecasts, is punchy for a retailer, even one as well run as this one,” he told Capital.com.

Mould highlighted “the many variables involved”, including seasonal trends, weather, the pandemic and whether consumers will return to buying experiences, rather than goods, after Covid-19.

“Such a premium multiple provides limited downside protection should anything unexpected go wrong,” he said. “Bulls will counter by arguing that valuation on its own does not stop a stock and in these ultra-liquid markets that rings particularly true.”

Mould also pointed out that Dunelm has consistently beaten earnings forecasts over the past couple of years and further earnings upgrades could mean those earnings multiples turn out to be “deceptive and too high”.

Still, algorithm-based forecasting services are bullish on the Dunelm group share price predictions. The stock is rated a “buy” based on five analyst ratings compiled by Marketbeat, with a consensus price target of £16.68. According to its DNLM stock forecast, the high price target would be £18.50 and the low £12.15. The stock also has a predicted upside of 12.45%, based on their 12-month price targets.

Dunelm’s stock has the potential to rise to £17.88 over the coming year, according to Wallet Investor. It also suggests the stock could hit £29.54 by 2026. 

Bear in mind that any analyst predictions and price targets can be wrong. Markets are volatile and the price of an asset can always go against you. We encourage you to do your own due diligence before making any trading decision. 

Background to Dunelm

The company has certainly come a long way since it was founded in 1979 as a market stall – pitch number D45 – in Leicester, UK, selling ready-made curtains. 

Its first shop opened in 1984, followed by a superstore seven years later. The company floated on the London Stock Exchange in 2006 and is currently a member of the FTSE 250 Index.

Having initially focused on bedding, curtains, cushions, quilts and pillows, Dunelm has broadened its horizons to stock around 50,000 product lines.

It now sells furniture, kitchenware, lighting, and dining and outdoor wares, as well as craft and decoration. The company also has its own brands and labels, such as Dorma and Fogarty.

Dunelm now has 175 outlets, mainly in out-of-town locations, and claims to have more than five million visitors to its stores and website every week.

FAQs

Why has Dunelm share price been increasing?

Dunelm has enjoyed strong sales and profits over the past year, with online platforms playing an important role with Covid-19 forcing stores to close.

Dunelm shares: buy or sell?

Whether Dunelm is a suitable investment for you will depend on your personal research and trading strategy. You need to perform your own due diligence and decide if the DNLM stock meets your needs and appetite for risk.

Will Dunelm stock go up/down?

This depends on a number of variables. It’s crucial to do your own research to form an opinion of a company’s performance and likelihood of achieving analysts’ targets. Keep in mind that markets are volatile and past performance of the stock does not guarantee future gains. 

Edited by Alexandra Pankratyeva

Read more: PureGym IPO: will the gym firm flex its muscles?

Markets in this article

DNLM
Dunelm Group
11.150 USD
0.01 +0.090%
DNLM
Dunelm Group
11.150 USD
0.01 +0.090%

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