Dunelm Group plc surges 10% on Q2 update: is further share price growth ahead?

Could Dunelm Group plc (LON:DNLM) (DNLM.L) deliver a rising share price?




Dunelm
Dunelm

The share price of Dunelm Group plc (LON:DNLM) (DNLM.L) has risen by around 10% today after the home furnishings retailer released a second quarter trading update.

Total like-for-like (LFL) revenue growth increased by 9%, with LFL store revenue growing by 5.7%. Online LFL revenue was up 37.9%. These figures are relatively strong in my opinion. The UK is facing a period of weak consumer confidence, with a number of retailers experiencing challenging trading conditions. For the company to be able to deliver the level of growth which has been recorded in the second quarter suggests to me that its strategy is working well.

Dunelm continues to push ahead with its growth plans for the digital world. Total multi-channel revenue continues to account for an increasing proportion of total sales, with it rising by 4.1 percentage points to 16.5% of revenue in the second quarter.

Gross margin has improved following the elimination of lower margin sales from the Worldstores business. It increased by 190 basis points versus the same quarter of the previous year. Development of the company’s multichannel capabilities remains a priority, while it did not open or relocate any stores during the quarter.

In my view, the prospects for the wider UK retail industry are challenging. Dunelm’s share price could therefore be volatile in the near term if investors decide to adopt a cautious stance towards the sector.

However, I feel that the strategy being pursued by the business in terms of investing in its omnichannel capabilities at the same time as it is moving away from low-margin operations could lead to rising profitability. Therefore, within a retail industry that I find appealing in terms of its recovery potential in future years, I’m optimistic about the outlook for the stock on a relative basis after an encouraging second quarter performance.




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Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email info@investomania.co.uk or use one of the other contact methods available on the 'Contact Us' page