Market commentary

We already knew the problem for Dunelm is that while sales are growing, stubborn profits refuse to budge. 

While today’s strategy update shows the retailer has a clear plan to change this, investors shouldn’t anticipate any short-term movement, as adjusted profit before tax is slated to remain flat across FY27. 

The problem for Dunelm has been steadily growing operating costs, which rose by nearly £30m last year to largely undo the gains offered by higher revenue and gross margin improvement. Dunelm’s answer is its ‘Winning Hearts & Homes’ stratagem. 

Key to this is the removal of £100m in what Dunelm calls unproductive costs over the next three years, while boosting capital expenditure by approximately £125m above its current run rate over the period. In return, the business has its sights set on improving revenue growth with store and digital expansions, as well as better customer loyalty. 

The upshot is that FY27 looks like being a year of investment and refinement, rather than a year of profit growth, particularly as Dunelm noted that heatwaves led to a significantly softer start to trading. For investors, that means exercising a little patience as they wait to see if Dunelm’s plan will live up to its kitschy title.

‍