Furnishings chain Dunelm has said it will make better profits than expected after improvements to its website boosted sales.
Shares in the company soared nearly 20% on Thursday to 993.5p, the highest level in three years, after Dunelm’s unscheduled stock market statement said that profit margins had also improved because it had secured better deals with suppliers and sold more stock.
“The board now anticipates that the full year profit before tax will be higher than our previous expectations, assuming no significant change in consumer demand as a result of the outcome of the general election,” the statement said.
Analysts said they had now pencilled in annual profits for Dunelm of about £139m, at least 5% more than previously estimated.
Eleonora Dani, at Stifel, said she expected sales and profits to be driven higher by the group’s faster and more personalised website, particularly for mobile phones, and by a click-and-collect service in stores.
She said: “Dunelm’s market-leading position is highlighted by resilient trading across all categories, including furniture, despite many promotional activities [by its rivals].”
John Stevenson, at Peel Hunt, said Dunelm was outperforming its peers as its brand became more well-known and it improved its product range.
What’s the problem?
Physical retailers have been hit by a combination of changing habits, unseasonably warm weather, rising costs and broader economic problems. In 2018 Toys R Us, Maplin and Poundworld disappeared as a result.
In terms of habits, shoppers are switching to buying online. The likes of Amazon have an unfair advantage because they have a lower business rate bill, which holds down costs and enables online retailers to woo shoppers with low prices. Business rates are taxes, based on the value of commercial property, that are imposed on traditional retailers with physical stores.
At the same time, there is a move away from buying ‘stuff’ as more people live in smaller homes and rent rather than buy. Those pressures have come just as rising labour and product costs, partly fuelled by Brexit, have coincided with economic and political uncertainty that has dampened consumer confidence.
What help do retailers need?
Retailers with a high-street presence want the government to change business rates. They also want more political certainty as the potential for a no deal Brexit means some are not only incurring additional costs for stockpiling goods but are unsure about the impact of tariffs after October 2019. Retailers also want more investment in town centres to help them adapt to changing trends, as well as a cut to high parking charges which they say put off shoppers.
What is the government doing?
In the October 2018 budget the government announced some relief on business rates for independent shopkeepers. It has also set up a £675m ‘future high streets’ fund under which local councils can bid for up to £25m towards regeneration projects such as refurbishing local historic buildings and improving transport links. The fund will also pay for the creation of a high street taskforce to provide expertise and hands-on support to local areas.
What is the outlook in 2019?
Some retailers could go under. Weakened by a difficult Christmas – which accounts for the entire annual profits of many retailers, and with further Brexit wobbles to come – retailers are facing a tough 2019. Another rise in the national minimum wage in April and the falling value of the pound against the dollar, which is used to buy goods in the far east, have also added to costs and hit profits.
Dunelm’s established stores are thought to have experienced a 2% increase in sales, despite a tough market in which other homeware retailers have been struggling.
The slowdown in the housing market and low consumer confidence amid political and economic uncertainty has held back spending on expensive items such as furniture, kitchen appliances and carpets.
Carpetright recently agreed a cut-price £15m sale to its biggest shareholder after it made a pre-tax loss of nearly £25m in the year to April. The sale came after the retailer closed more than 90 showrooms last year in a rescue restructure as it fights off competition from loss-making rival Tapi.
Meanwhile, the loss-making furnishings chains Harveys and Bensons for Beds were sold off by their troubled South African parent company Steinhoff last month.
