Specialist out-of-town homewares retailer Dunelm Group has today reported strong sales over the last quarter at its new outlets, but also an overall drop in footfall across its store portfolio in the last two months.
Total sales across the group increased 10.7 per cent to £154.1 million in the 13 weeks to March 31st 2012 but much of this growth came from new space added over the last nine months, as like-for-like sales were broadly flat – rising just 0.6 per cent year-on-year.
Consumer spending on big ticket & non-essential items has been curbed considerably over the last year due to rises in the cost of living, and in the first nine months of Dunelm’s financial year underlying sales have actually fallen 1.3 per cent.
Footfall was markedly down during February & March of this year for the retailer, but it in fact experienced a quieter third quarter last year when underlying sales dropped 1.3 per cent, albeit over a slightly different set of dates.
Nick Wharton, CEO of Dunelm, commented: “Our focus on the development of our Simply Value for Money proposition and growth both through new stores and through our multi-channel offering has seen Dunelm achieve a solid sales performance in what remains a very demanding retail environment.
“It is prudent to remain cautious about the wider economy and, recognising its impact on consumer confidence, we will maintain our disciplined approach to the management of gross margin and operating costs.
“However with a clear growth strategy and strong pipeline of new stores ahead we remain confident in the future prospects for the business.”
A new store in Cambridge, scheduled to open before the end of June, will bring the total number of new outlets to 15 for the retailer since the start of the financial year, and leases on six more units have already been committed to.
Dunelm now expects gross margin to be up by 20bps in the full year and Joseph Robinson, Senior Consultant at analyst group Conlumino, argues that the business is making good progress despite the difficulties seen across the sector.
“The softness in underlying sales is more reflective of the anaemic state of the home retail market than it is of any fundamental problem with Dunelm’s strategy,” Robinson said.
“Indeed, better management of sale activity and improved economies of scale from expansion have allowed gross margin improvements of around 30bps in this latest quarter.”
While it has invested heavily in new stores over recent months, including superstores in Exeter & Salford, the company remains in a strong financial position with net cleared funds of £50.2 million.
In the medium term Dunelm looks well placed to benefit from an upswing in consumer spending due to its value-for-money offer, but Robinson warns that it may face increased competition further into the future.
“Dunelm will face pressures as players like IKEA seek to improve their soft furnishings offers and others like John Lewis expand with new home focused stores,” Robinson added.
“That said, Dunelm has a clear proposition and so long as it remains sufficiently differentiated it should be more than capable of holding its own.”