Dunelm Group PLC

Earnings Release • Jul 7, 2017

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RNS Number : 3839K

Dunelm Group plc

07 July 2017

7th July 2017

Year-end Trading Update

Dunelm Group plc ("Dunelm" or "the Group"), the UK's leading homewares retailer, reports the following trading update for the final quarter and for the financial year ended 1st July 2017.

Revenue

Total revenue for the fourth quarter rose by 17.7% to £240.0m. Total revenue, excluding Worldstores, rose by 6.7% to £217.4m. Total like-for-like (LFL) growth (combining LFL stores and Home Delivery) grew by 3.8%.

	13 weeks to 1st July 2017			52 weeks to 1st July 2017
	Sales (£m)	YoY Growth (£m)	YoY Growth (%)	Sales (£m)	YoY Growth (£m)	YoY Growth (%)
LFL stores	178.6	+2.3	+1.3%	758.4	-18.7	-2.4%
Home Delivery	21.1	+5.1	+32.1%	76.5	+14.5	+23.5%
Total LFL	199.7	+7.4	+3.8%	834.8	-4.1	-0.5%
Non-LFL stores	17.8	+6.3	-	66.3	+24.4	-
Total Dunelm excl. Worldstores	217.4	+13.7	+6.7%	901.1	+20.3	+2.3%
Worldstores*	22.5	+22.5	-	54.5	+54.5	-
Total Dunelm Group	240.0	+36.2	+17.7%	955.6	+74.7	+8.5%

*Worldstores year to date figures represent the thirty-one-week period post acquisition from 28th November 2016, until 1st July 2017.

Commenting on Dunelm's performance, John Browett, Chief Executive, said:

"The Worldstores acquisition will provide a massive leap forward to our online and store offer that we think our customers will love. The integration is going well and we are confident in the benefits it will generate. With around 20% of our sales now generated online, we believe that we have arrived as a significant e-commerce player in homewares.

"We've seen a good quarter of trade with positive like-for-like sales growth and a very strong online performance. Encouragingly, we continue to take market share.

"We continue to invest in the business for the longer term to improve our customer proposition and infrastructure and, despite an uncertain consumer environment, we go into the next financial year with some good momentum."

Final Quarter Underlying Performance

We have seen a good performance in the period, with growth in our like-for-like store sales and an increase in market share. We are particularly pleased with the strong growth of our home delivery sales which is due to continued development of the online offering and the launch of Worldstores products on the Dunelm website. Overall around 20% of our sales are now generated online.

We were expecting approximately 1.5% of LFL sales to move from the third to the fourth quarter as a result of Easter falling later in the year. Sales over the Easter period were, however, 7.0% lower than the prior year which equated to a 1.7% adverse impact on LFL growth, thus offsetting the timing benefit.

We have made a strategic investment to allocate more space to and improve the range of our seasonal products which have delivered very strong sales growth of 70% in the period, and which helped mitigate some of the impact of very hot weather conditions late in the quarter during our summer sale.

Gross Margin

Dunelm's gross margin percentage (excluding Worldstores) for the quarter decreased by approximately 75bps. We have focused on increasing newness in our latest ranges, to further improve our product offer to customers, which has meant increased markdowns on some end of season stock. We also had a higher seasonal sales mix which attracts a lower gross margin.  Our expectation is that gross margin for the full year will be broadly flat compared to the prior year.

Worldstores' gross margin percentage in the quarter was broadly in line with that of Q3, at 35.0%, and for the period since acquisition is expected to be around 34.5%.

For the full year, Group gross margin is expected to be around 49.0%.

Worldstores

We remain excited by the Worldstores opportunity. The acquisition allows us to offer a much broader range of products with an easier shopping experience for customers, and accelerates our development as a genuine multi-channel retailer from what is already a very strong base. Our detailed integration plan focusses on the following key areas:

·      development of a next day delivery proposition for a much wider range of products, including furniture;

·      an improved two-man, owned and branded, delivery service that is more reliable for customers and cheaper to operate;

·      offering Kiddicare products in Dunelm stores and to a greater number of customers online; and

·      a new proprietary technology platform that will enable much faster development of products and services for customers.

The integration of Worldstores is progressing well. Performance continues to improve and is broadly in line with our expectations. We are more confident than ever in the longer-term benefits of the acquisition and the value this will bring to the Group.

Exceptional items relating to the acquisition are expected to be around £17m for the financial year of which c£11m represents a cash outflow. This reflects welcome payments to suppliers, acquisition costs, retention payments, asset impairment and integration and restructuring costs. As we continue to integrate the businesses, we expect a further c£7m of exceptional items in the next financial year, of which c£4m will be a cash outflow.

Store Portfolio

There were no new openings in the period, holding our superstore footprint at 159 stores, representing a total increase of seven openings in the year. We are now legally committed to a further seven new stores of which five are due to open in the first quarter of next year. We have completed eleven store refits within the year and plan to deliver a similar number in the next financial year.

Cash Generation

The Group remains highly cash generative. We have invested significantly in the business during the current year including seven new store openings, implementing our new store format in eleven existing stores, purchasing two freehold properties, investing in Worldstores and developing new product areas, such as our improved seasonal offer.

Our net debt at the year-end is expected to be in the region of £127m, with higher stock levels principally due to investment in seasonal ranges and the earlier phasing of autumn and winter ranges to ease flow through the warehouse.

Whilst we will continue to invest in the business next year, particularly in store openings, we should continue to generate strong free cash flow.

Overall Financial Performance

We now anticipate that pre-exceptional profit before tax for the 52 weeks ended 1st July 2017 will be in the range of £109.0m - £111.0m.

Ends

For further information please contact:

Dunelm Group plc	0116 2644439
John Browett, Chief Executive
Keith Down, Chief Financial Officer
MHP Communications	020 3128 8100
John Olsen/Simon Hockridge/Gina Bell	dunelm@mhpc.com

Next scheduled events:

Dunelm will make its preliminary results announcement on 13th September 2017 and there will be a presentation for analysts in the offices of UBS, 5 Broadgate, London EC2M 2QS. Those analysts who wish to attend are requested to contact Pete Lambie of MHP on 020 3128 8100 or peter.lambie@mhpc.com. A copy of the presentation will be made available on the Dunelm website.

Dunelm will also hold a Capital Markets Day for analysts and investors on 11th October 2017.  This will cover, inter alia, the benefits of our Worldstores acquisition and progress on our other strategic initiatives.  Further details will be provided in due course.

Notes

1.     Like-for-like (LFL) sales represents revenues from stores trading for at least one full financial year prior to 3rd July 2016 and excludes stores with significant change of space in the current or previous financial year.

2.     Quarterly sales and margin analysis (excluding Worldstores):

	52 weeks to 1st July 2017
	Q1	Q2	H1	Q3	Q4	H2	FY
Total sales	£198.7m	£253.8m	£452.4m	£231.3m	£217.4m	£448.7m	£901.1m
Total sales growth	-1.8%	3.3%	1.0%	1.0%	6.7%	3.7%	2.3%
LFL sales growth	-3.8%	0.2%	-1.6%	-2.2%	3.8%	0.6%	-0.5%
Gross margin growth*	0bps	+10bps	+5bps	+75bps	-75bps	0bps	0bps

*estimated

	52 weeks to 2nd July 2016
	Q1	Q2	H1	Q3	Q4	H2	FY
Total sales	£202.3m	£245.7m	£448.1m	£229.0m	£203.8m	£432.8m	£880.9m
Total sales growth	12.0%	8.8%	10.3%	5.9%	1.8%	3.9%	7.1%
LFL sales growth	5.5%	3.9%	4.6%	1.1%	-0.6%	0.3%	2.5%
Gross margin growth/decline	+20bps	+30bps	+30bps	+90bps	+80bps	+90bps	+60bps

Notes to Editors

Dunelm is market leader in the £11bn UK homewares market. It currently operates 163 stores, of which 159 are out-of-town superstores and 4 are located on high streets, and an online store, to be found at www.dunelm.com.

The company acquired the assets of Worldstores, including Achica and Kiddicare, on the 28th November 2016. Worldstores is one of the UK's largest online retailers of products for the home and garden, with over 500,000 products on the site. Achica is a members-only online store offering furniture, homewares and accessories, often at significant discounts to RRPs for limited periods through flash sales. Kiddicare is a multichannel retailer, selling nursery supplies and merchandise for children and young families.

Dunelm's "Simply Value for Money" customer proposition offers industry-leading choice of quality products at keen prices, with high levels of availability and supported by friendly service. Core ranges include many exclusive designs and premium brands such as Dorma and Fogarty, and are supported by a frequently changing series of special buys. The superstore format provides an average of 30,000 sq. ft. of selling space with over 35,000 products across a broad spectrum of categories, extending from the Group's home textiles heritage (bedding, curtains, cushions, quilts and pillows) to a complete homewares offer including kitchenware and dining, lighting, wall art, furniture and rugs. Dunelm is one of the few national retailers to offer an authoritative selection of curtain fabrics on the roll, and owns a specialist UK facility dedicated to producing made-to-measure curtains.

Dunelm was founded in 1979 as a market stall business, selling ready-made curtains. The first shop was opened in Leicester in 1984 and over the following years the business developed into a successful chain of high street shops before expanding into broader homewares categories following the opening of the first Dunelm superstore in 1991.

Dunelm has been listed on the London Stock Exchange since October 2006 (DNLM.L) and has a current market capitalisation of approximately £1.2bn.

This information is provided by RNS

The company news service from the London Stock Exchange

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