Dunelm Slumps as U.K. Retailer Warns of ‘Transitional Year’

  • First-half profit falls and rest of year may be no easier
  • CEO’s comment ‘sounds a bit ominous,’ analyst Nick Bubb says

U.K. home-furnishings retailer Dunelm Group Plc reported a slide in first-half profit and indicated that the rest of the year may not be any easier, sending its shares tumbling.

The company is in “a transitional year,” Chief Executive Officer John Browett said in a statement Wednesday. Dunelm shares fell as much as 11 percent in London to the lowest in more than four years.

Browett’s comment “sounds a bit ominous,” Nick Bubb, an independent retail analyst, said in a note. “When you say that ‘this is a transitional year,’ then it usually means that profits will be down.”

The retailer, which has doubled its store numbers since going public just over a decade ago, is experiencing growing pains at a time when sterling’s Brexit-induced drop is causing it to raise prices and online competition is intensifying.

Business in the first half of the year was “slightly softer than normal,” Browett said by phone, adding that conditions remain challenging. Dunelm encountered teething difficulties at its new distribution center in Stoke-on-Trent, England, where the startup was more difficult than expected and affected product availability, he said.

“You have to take the pain sometimes when you’re setting up for future growth and that’s what we had to do,” the CEO said. Dunelm is also ramping up its online business and late last year acquired struggling online rival Worldstores. It also plans to add to its 161 stores with the aim of surpassing 200.

Browett has said the retailer, which imports most of its inventory, will increase prices by about 5 percent after the pound fell against dollar-linked Asian currencies in the wake of the U.K.’s vote to leave the European Union.

“We have some concerns about consumer reaction to price rises,” Richard Chamberlain, an analyst at RBC Europe, said in a note. He also listed the impact on sales of opening new stores near to existing ones, the maturity of the brand and increased online and specialist competition as potential concerns.

Highlights of first-half results:

  • Pretax profit down 11 percent to 67 million pounds, excluding Worldstores acquisition
  • Like-for-like sales down 1.6 percent
  • Dividend up 8.3 percent to 6.5 pence a share
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