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Dunelm Sales Accelerate as U.K. Homeware Chain Adds Stores

July 8 (Bloomberg) -- Dunelm Group Plc, the U.K. homeware chain that began as a market stall for curtains 35 years ago, said sales growth accelerated in the fiscal fourth quarter as it opened more stores and ran its first national TV advertising.

Revenue rose 12 percent to 178.4 million pounds ($305 million) in the 13 weeks through June 28, compared with a 7.8 percent gain for the year, the Leicester, England-based company said today in a statement. Like-for-like sales advanced 5.5 percent, beating the 5 percent average analyst estimate compiled by Bloomberg and exceeding a 2.1 percent gain for the year.

“The trough of consumer confidence is behind us in a way that we haven’t seen for perhaps three or four years,” Chief Executive Officer Nick Wharton said in a phone interview. Even so, “the consumer environment remains very challenging.”

Dunelm paid 3 million pounds to conduct the television campaign and also improved online operations and expanded the “Dunelm at Home” design service to 75 stores from 26 outlets during the year. The company, controlled by the founding Adderley family, operates 136 superstores across the U.K. after opening 12 new outlets in the last year.

“After two special dividends in the last two years, we believe the company will continue to return cash to shareholders,” Freddie George, an analyst at Cantor Fitzgerald, said in a note to clients.

Pretax Disappoints

While George reiterated a buy recommendation on Dunelm shares, he lowered his price prediction to 900 pence from 1,050 pence because the company said it anticipates reporting pretax profit of 116 million pounds for the year, less than he anticipated.

The stock traded at 819 pence, down 0.5 percent, at 12:46 p.m. in London after rising as much as 1.6 percent earlier in the day. That gives the seller of bed linen and furniture a market value of about 1.66 billion pounds.

Full-year results were affected by a heatwave that held back performance in the early part of the fiscal year, Dunelm said. The sales benefit from online initiatives and store improvements should continue into the new financial year, it said.

Dunelm has cut costs in the past year by purchasing goods directly from suppliers in a dozen countries in the Far East, rather than paying agencies in the U.K. to handle the work, Wharton said in the interview. That helped drive an improvement in gross margin, a key measure of profitability, in the full year of an estimated 0.8 percentage point, Wharton said.

Dunelm is scheduled to report full results on Sept. 11.

To contact the reporter on this story: Tom Beardsworth in London at tbeardsworth@bloomberg.net

To contact the editors responsible for this story: Emma Ross-Thomas at erossthomas@bloomberg.net David Risser, Robert Valpuesta

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