Dunelm Group (LON:DNLM) used its interim results presentation to outline a “solid” first-half performance, discuss a softer second quarter, and highlight areas of strategic focus ranging from customer perception and personalization to store space and digital development.
First-half trading: growth, market share and customer satisfaction
Management said the first half delivered year-on-year sales growth of 3.6%, with total sales of GBP 926 million. The period showed a split between quarters, with 6.2% growth in Q1 and 1.6% growth in Q2, which the company said was below expectations. Management added that trading had improved in the early part of Q3, with sales growth “similar to the overall growth for H1,” helped by customer response to the winter sale.
Profitability: margin lift offset by cost phasing
Gross margin increased by 60 basis points to 53.4%. Finance director Karen Witts said the improvement was “mainly driven by favorable foreign exchange rates,” with Dunelm keeping retail prices “broadly stable,” maintaining promotional discipline, and closely managing input costs. She added that the foreign exchange tailwind was expected to continue for the remainder of the year, noting the company hedges over a long period and is already hedged for some, but not all, of 2027.
Profit before tax (PBT) was GBP 114 million, down GBP 9 million year-on-year, which management attributed primarily to the profile of operating costs. EPS declined from GBP 0.45 to GBP 0.41, while the effective tax rate of 25.6% was described as stable and within guidance, running 50 to 100 basis points above the headline corporation tax rate.
Net operating costs in the first half were GBP 375 million, up GBP 32 million year-on-year. Witts described a mix of drivers, including volume-related costs linked to digital sales, inflation (particularly labor), and investment, partly offset by productivity gains. She said some costs were phased into H1 rather than H2, and the company expects the year-on-year increase in costs to “moderate significantly” in the second half.
- GBP 11 million of cost growth was tied to digital sales (logistics and performance marketing).
- Inflation in the non-labor cost base was managed to GBP 11 million, described as just over 3% of the operating cost base.
- GBP 9 million of incremental investment reflected the full impact of costs from stores opened in the prior year’s second half, including Ireland.
- GBP 6 million of productivity benefits were cited, including performance marketing optimization and early benefits from self-serve checkouts.
On cost control, Witts emphasized that the company was not planning to “cut into the muscle,” describing productivity as coming from both continuous improvement and more programmatic initiatives. She pointed to self-serve checkouts—expected to be in more than 100 stores by year-end—as an example of benefits that should be more evident in H2.
Cash flow, dividends, buyback and CapEx
Dunelm reported headline free cash flow of GBP 171 million (a 65% conversion ratio) and a half-year headline net cash position of GBP 13 million. As in the prior year, the figures included a temporary working capital timing benefit: a GBP 93 million favorable payable timing variance that cleared shortly after the period end. Management said there was nothing unusual about the payments and that the impact is neutral over the full year.
The board declared an interim ordinary dividend of GBP 0.17 per share, up 3% year-on-year, and announced a GBP 0.25 per share special dividend. Witts also said the company intends to buy back up to 1.6 million shares to satisfy employee share option scheme requirements.
First-half capital expenditure totaled GBP 23.2 million, down materially year-on-year (the prior-year period included a freehold store purchase). Spending in H1 included refits, small works, decarbonization activity, self-checkout rollout, and capitalized technology spend, including the app. The company reduced full-year CapEx guidance to around GBP 40 million from its previous view of about GBP 50 million, citing the timing of new store openings. Management said some store-related CapEx would likely flow into next year, though it did not provide total CapEx guidance for FY 2027.
Q2 softness: discounting, consumer confidence and furniture availability
Management attributed the weaker Q2 growth to subdued consumer confidence, deeper and more prolonged discounting across the sector, and a change in category tailwinds. Dunelm said it chose not to “further engage” in heavier discounting, which affected sales participation.
Furniture, which management said had been supportive in previous quarters, performed less well. Executives also acknowledged an internal availability miss tied to the rollout of a forecasting and replenishment tool (F&R). While the system was described as performing well across other categories—improving availability and reducing stockholding—it did not work as effectively in furniture, particularly when there was a high level of newness and limited historical demand data.
Chief executive Clodagh Moriarty said the company’s learnings were to improve confidence in both inputs and outputs, and to ensure internal expertise sense-checks system recommendations rather than simply “trust the system.” Management said furniture availability had recovered to “north of 95%.”
Strategic priorities: brand positioning, stores, digital and operational improvements
Moriarty, who said she joined four months ago, shared early “data-driven insights” that she said are informing the company’s strategic evolution. She highlighted a gap between high brand awareness and lower consideration to buy, which she said is in line with benchmarks but not where a market leader “expects” to be. The company announced that Laura Harricks will join in early March as Chief Customer Officer, with priorities including brand positioning and improving customer perception.
On customer behavior, Dunelm said around one-third of customers account for two-thirds of sales, but the company estimates it captures only about 15% of its most loyal customers’ homewares wallet, indicating “headroom.” The company discussed early trials of omnichannel communications and incentives, reporting “high levels of incrementality” and relatively low redemption rates, and said it plans to make these efforts more personalized over time.
Dunelm also discussed range and merchandising actions. Moriarty said about 70% of products are sold under the Dunelm brand, but packaging can make it hard for customers to distinguish “good, better, best,” and the company plans to create greater clarity. She also said Dunelm has begun removing brands that create cost or customer confusion, noting it retired Elements and Edited Life at the start of the financial year. Additionally, she said roughly half of SKUs contribute most of sales, and the company will use that insight to refine ranges. A near-term initiative is ensuring top sellers are in all stores: smaller stores currently carry about 70% of top-selling SKUs, and management said it plans to embed improvements before the end of the financial year.
Digital participation rose to 41% of sales, up 2 percentage points. Moriarty said Dunelm came “late to digital” but sees strong engagement from early app adopters, including basket-building and larger baskets. She said 130,000 customers downloaded the app organically during a soft launch, with an official customer launch planned for the end of the month. Features described included “Shop the Look,” “Shop the Range,” store finder, in-store stock visibility, and earlier access to product releases.
Store strategy was another key focus. Moriarty said Dunelm intends to “double down” on the existing estate, arguing stores are “not growing fast enough,” while also pursuing white space. In Q&A, she said the company’s view is that the reach opportunity is significant, with an aspiration that 90% of the U.K. population should be within a 15-minute drive (compared with the company’s current position, which she contrasted as lower). Management reiterated it is not changing medium-term guidance for 5-10 store openings a year, while noting there will be stronger and slower years, and that two stores now likely open early in FY 2027. The company said small urban formats, including stores in Westfield and Wandsworth, are trading well with high trading intensity, and it plans to pursue more.
Operationally, Moriarty highlighted an example in home delivery where the company identified lower CSAT in one-person deliveries, with damage cited as a major driver. Dunelm changed packaging before Christmas and said it has already reduced one-person home delivery complaints by 20%.
Looking ahead, Witts said the company remains confident in delivering full-year PBT in line with market consensus expectations, expects a broadly neutral working capital position at year-end, and anticipates its effective tax rate will remain 50 to 100 basis points above the headline rate.
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.
