Dunelm warns of 'significant pressures' on cash-strapped consumers despite surge in sales

Homewares retailer Dunelm has reported a strong quarter but warned of a “highly uncertain” outlook with significant pressures on UK consumers.

Releasing a trading update for its third quarter, the firm also said it had been forced to build up extra stock to offset problems in its supply chains.

Last year’s disruption to supply chains which was caused when economies reopened after the pandemic has meant that the business has stockpiled in recent months.

Its inventories reached £224 million towards the end of March, compared with £147m two years earlier.

Dunelm stores have become a familiar sight on retail parks across Scotland and the UK.

“As previously advised, we have been building a higher level of inventories to mitigate against ongoing supply chain disruption and to ensure better availability for our customers,” the group told investors.

This storage ended up costing Dunelm extra money, and it expects the inventory levels to remain fairly unchanged over the next three months.

Yet despite these costs, and additional freight and raw material charges, the company managed to increase the margins on the products it sold.

It put this down to the winter sale - the proportion of products it sold at knock-down prices was lower than expected, which helped margins.

The update revealed that quarterly sales jumped 69 per cent to £399 million in the three months to the end of March, when compared with the same period a year earlier. Shops were closed in the opening months of 2021.

The first ten weeks of the third quarter saw sales up 31 per cent compared with the same period two years ago, just before Covid struck.

Chief executive Nick Wilkinson said: “It has been another good quarter for Dunelm with sustained growth across all of our homewares categories, particularly as customers ready their homes and gardens for the summer.

“Performance has been strong across all channels and our new facilities for e-commerce and furniture fulfilment are now fully operational, which will enhance our multi-channel proposition, whilst providing the capacity for further growth.”

He added: “Whilst the macro environment remains uncertain, with significant headwinds and increasing pressures on the consumer, our wide product range offers choice for every budget, whether replacing everyday essential items or refreshing a room in your home.

“The resilience of the Dunelm business model and the ability of our colleagues to adapt quickly to changing circumstances give us confidence in our plans and we remain well placed to continue to grow market share.”

In February, the firm launched a product collection in collaboration with the Natural History Museum. Bosses said they had been pleased with both the sales performance and “positive sentiment” on social media. The group now plans to expand the range further in the summer.

Dunelm added: “We continue to work closely with our committed suppliers to take actions to mitigate significant raw materials and freight cost increases. The outlook remains dynamic, and we continue to monitor gross margins closely.

“Given the robust margin performance in the year to date and the expected impact of the non-like-for-like summer sale in the fourth quarter, we anticipate gross margin for the full year [2022] will be broadly similar to [2021].”

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