Does Dunelm Group plc Have More Investment Appeal Than Tesco PLC, J Sainsbury plc, Sports Direct International Plc And WM Morrison Supermarkets PLC After H1 Update?

Will shares in Dunelm Group plc (LON:DNLM) (LSE:DNLM.L) rise faster than Tesco PLC (LON:TSCO) (LSE:TSCO.L), J Sainsbury plc (LON:SBRY) (LSE:SBRY.L), Sports Direct International Plc (LON:SPD) (LSE:SPD.L) and WM Morrison Supermarkets PLC (LON:MRW) (LSE:MRW.L)?

Dunelm Group plc
Dunelm Group plc

Dunelm Group plc (LON:DNLM) (LSE:DNLM.L) has released H1 results to the stock market today. They show the company has increased market share at a time when trading was slightly softer than expected. This was down to a weaker market and some short term supply chain disruption. Due to this, the company’s share price has fallen by 8.1% at the time of writing.

LFL sales dropped 1.6% and were hurt by a fall in LFL store sales of 3.1%. Although LFL home delivery sales were up 20.1%, the overall impact was negative and Dunelm’s total sales increased by only 1%. These figures exclude the impact of Worldstores, which was recently acquired. When its performance is added to Dunelm’s total sales, they were 2.8% higher than in H1 2016.

Gross margins declined 30% to 50.4%, which caused EBITDA to be 19.5% lower when exceptionals are included. This meant PBT was 26% below H1 2016. Even so, dividends per share were increased by 8.3% to 6.5p.

Dunelm’s progress with strategic priorities and its investment programme continues to strengthen the business for the future. Its ongoing store portfolio expansion saw 5 new stores opening in H1 and a further 5 forecast for the rest of the year.

The company’s shares have fallen 21% in 2017. That’s a worse performance than other retailers such as Tesco PLC (LON:TSCO) (LSE:TSCO.L), J Sainsbury plc (LON:SBRY) (LSE:SBRY.L), Sports Direct International Plc (LON:SPD) (LSE:SPD.L) and WM Morrison Supermarkets PLC (LON:MRW) (LSE:MRW.L). Tesco is 6% lower, while shares in Sports Direct, Sainsbury’s and Morrisons are up 7% apiece.

In my view, Dunelm faces a difficult 2017. I think consumer spending will be squeezed by higher inflation and its sales could be hit further by a softening consumer market. I feel the business has a sound strategy for the long term, but it’s not a stock I’d look to rush out and buy at the moment. It’s on my watchlist, but I believe I can find more appealing investment opportunities elsewhere at the moment.

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