Dunelm Group H2 Earnings Call Highlights

Dunelm Group LON: DNLM reported 3.1% sales growth for fiscal 2026, while profit before tax held steady at £211 million as the homewares retailer offset inflationary and volume-related cost pressures with productivity gains and modest gross-margin expansion.

For the year ended June 27, total sales rose to £1.825 billion and gross margin increased 10 basis points to 52.5%. The company said it continued to outperform the broader U.K. homewares and furniture market, raising its market share by 10 basis points to 7.9%.

Karen Witts, Dunelm’s CFO, said profit before tax margin declined 30 basis points to 11.6%, while diluted earnings per share remained unchanged at 76.8 pence. Net operating costs increased 3.9% to £734 million, reflecting higher logistics, performance marketing, wage, fuel and warehouse-rental expenses.

Cost pressures offset by productivity measures

Witts said volume-driven costs, including variable logistics and performance-marketing spending associated with digital growth, added just under £20 million to the cost base. Inflationary pressures contributed more than £20 million of additional costs, with wage inflation remaining the largest headwind despite moderating in the final quarter.

The company invested a further £10 million during the year, mainly in its store estate. However, productivity gains accelerated during the second half and delivered £15 million of savings for the full year. Those gains included store labor optimization supported by self-checkout deployment, along with efficiencies in carriage, logistics and marketing.

Other factors provided a £10 million year-over-year benefit, including £3 million of net operating income tied to insurance receipts following two store fires, primarily compensating for lost trade. Lower performance-related remuneration expenses and a roughly £1 million business-rates benefit also helped mitigate cost increases.

Net operating profit increased by £2.9 million, but that gain was offset by a corresponding £2.9 million rise in net financing costs. Witts said the higher financing cost reflected an increase in lease interest charges to £10 million from £7 million in the prior year.

Digital sales and store investments

Digitally enabled sales grew more than 9%, and digital participation increased by two percentage points to 42%. Dunelm said its digitally enabled sales include home delivery, in-store tablet purchases and Click & Collect transactions, while store-enabled sales include walk-in purchases as well as tablet and Click & Collect sales.

Store-enabled like-for-like sales increased by just under 1%. The group opened two stores during the year, in Wandsworth and Kingston in London, and reopened its Yeovil site after it had been closed following a fire.

Claire said the company’s app customers have basket values 40% higher than web-only customers, with app basket values also ahead of store-only customers. Dunelm has expanded its activity on TikTok and YouTube and launched an AI-powered shopping assistant with Google for iOS users in Europe.

The company is 85% through its self-checkout rollout, according to Claire, with two-thirds of customers using self-service tills where they are available. Dunelm also said it was improving Click & Collect areas through front-of-store collection rooms and department-based picking, while home delivery remains an area under review.

In merchandise, the group introduced 6,000 new owned-brand products during the year. Lighting gained traction, with customer participation up eight percentage points year over year, while Made to Measure window treatments again recorded strong growth. Furniture availability improved in the second half after a supply challenge in the second quarter.

Cash flow, dividends and early trading

Free cash flow rose to £155 million from £127 million, while operating cash flow increased 5.7% to £270 million. Operating profit conversion to cash improved to 69% from 57%, aided by a £9 million working-capital inflow, primarily from lower inventory.

Capital expenditure totaled £43 million, including £27 million for the store estate and £13 million for technology, including the development and launch of the Dunelm app. Year-end net debt fell by £7 million to £95 million, leaving net debt to EBITDA at 0.3 times, within Dunelm’s stated target range of 0.2 to 0.6 times.

The board declared a final dividend of 28.5 pence per share, bringing the ordinary full-year dividend to 45.5 pence, up 2.2% from the prior year. The company also paid a 25-pence special dividend in April, taking total dividends declared for the year to 70.5 pence per share.

Looking ahead, Witts said first-quarter trading had been mixed. Extremely hot weather significantly affected the beginning of the quarter, though performance normalized more recently as weather turned cooler and wetter.

Dunelm said its strategy is centered on becoming a homeware specialist “with something for everyone,” improving omnichannel customer experiences and transforming capabilities to support sustainable growth.

About Dunelm Group (LON:DNLM)

Dunelm is the UK's market leader in homewares with a purpose 'to help create the joy of truly feeling at home, now and for generations to come'. Its specialist customer proposition offers value, quality, choice and style across an extensive range of c.70,000 products, spanning multiple homewares and furniture categories and including services such as Made to Measure window treatments. The business was founded in 1979 by the Adderley family, beginning as a curtains stall on Leicester market before expanding its store footprint.

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