Dunelm Group's (LON:DNLM) new CEO is taking steps to address recent underperformance and build the core brand. These include closing or selling the loss-making Worldstores (WS) businesses; developing a new web platform and introduction of ‘click and collect’; and launching a marketing campaign to raise the brand profile and acquire new customers. Assuming plans are executed successfully, we see upside to consensus forecasts.
Robust sales growth, disappointing end result
In the current retail climate, delivering FY18 total sales growth of 10% is, in our view, a credible result. Notably, store like-for-like sales remained positive while online sales grew by 37.9%. So it is disappointing that these gains were eliminated by an £11m trading loss from the acquired WS businesses and 90bp erosion of the core Dunelm gross margin, attributable to FX and an increase in the obsolete stock provision. Underlying PBT declined by 6.7% to £102m, in line with expectations.
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