REG - Dunelm Group plc - Preliminary Results
20/09/2023 07:00
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RNS Number : 9853M Dunelm Group plc 20 September 2023
20 September 2023
Dunelm Group plc
Preliminary Results for the 52 weeks ended 1 July 2023
Seizing the opportunity, with another record year of sales
Dunelm Group plc ("Dunelm" or "the Group"), the UK's leading homewares
retailer, today announces its preliminary results for the 52 weeks to 1 July
2023.
FY23 FY22 YoY FY22 YoY
(52 weeks) (52 weeks) (52w vs 52w) (53 weeks)
Total sales £1,638.8m £1,553.1m +5.5% £1,581.4m +3.6%
Digital % total sales(1) 36% 35% +1%pt 35% +1%pt
Gross margin 50.1% 51.2% -110bps 51.2% -110bps
Operating costs:sales ratio 38.0% 37.5% +50bps 37.4% +60bps
Profit before tax (PBT) £192.7m £209.0m -7.8% £212.8m -9.4%
Diluted earnings per share 75.0p 82.1p -8.6% 83.6p -10.3%
FY23 FY22 YoY
(52 weeks) (53 weeks)
Free cash flow(2) £160.4m £153.0m +£7.4m
Net debt(3) £30.7m £23.8m +£6.9m
Ordinary dividend per share 42p 40p +5.0%
Special dividend per share 40p 37p n/a
Highlights
· Continuing strong sales growth of 6%(4), as customers responded well
across the breadth of our expanding curated product range (up c.20,000 since
FY22)
· Unrelenting focus on offering value at all price points, passing on
cost reductions across over 1,000 products in the spring
· Further 40bps market share gain in combined homewares and furniture
markets(5)
· Active customers grew by 2.8%(6), with improved customer retention
· Three new stores opened, including one relocation; continuing to see
strong payback underpinning confidence to accelerate openings over the next
two years
· Progress on our Pathway to Zero commitments(7), with reductions in
Scope 1 carbon intensity and plastic packaging use, both ahead of our targets,
and increasing use of sustainable materials
· Further community engagement with circular solutions, such as
take-back services, a threefold increase in our 'Delivering Joy' gift campaign
for local causes, and over £800k raised for charities
Financial highlights
· Record sales of £1.64bn (FY22: £1.55bn(4))
· 50.1% gross margin (FY22: 51.2%(8)), in line with our expectations,
demonstrating tight operational grip
· Continued to focus on growth, investing more than £20m in
digitalising our end-to-end operations and growing capability to seize
multiple future opportunities
· Profit before tax ("PBT") of £193m (FY22: £209m(9)), reflecting
tight control of margin amidst inflation in our operating costs and our
ongoing commitment to investment for the future
· £160m free cash flow (FY22: £153m)(2), with strong conversion of
operating profit to cash of 81% (FY22: 70%)
· Final ordinary dividend of 27p per share (FY22: 26p) taking the full
year ordinary dividend to 42p per share (FY22: 40p), an increase of 5%,
reflecting confidence in the future growth prospects of the business
· £163m in total returned to shareholders during the year, including
special dividend of 40p declared with the interim results and paid in April.
Over £1bn returned over the past ten years(10)
Current trading and outlook
· Pleased with trading early in the new financial year
· Consumer behaviour remains unpredictable but value proposition
resonating well and expect to see FY24 sales and PBT growth, driven by volume
· Easing freight costs support gross margin
· Tight operational grip to help mitigate ongoing inflation in operating
costs
· Continuing to invest in our customer offer, total retail system and
marketing ecosystem to support sustainable growth
· Never been more confident in our plans to seize opportunities in the
short, medium and long term
Nick Wilkinson, Chief Executive Officer, commented:
"In a period of extensive economic uncertainty, we have maintained our focus
on enhancing our customer proposition, expanding our offer whilst staying
fully committed to value and making every pound count. This has clearly
resonated well with our customers, enabling us to continue growing both sales
and market share. As ever, our amazing colleagues have been at the heart of
this performance and I thank them all for their knowledge, personality,
commitment and enthusiasm.
"As we manage the ongoing challenges, it is crucial that we do not lose sight
of our longer-term ambitions. We are committed to raising the bar on value and
joy for our customers and continuing to invest where we see good returns, so
that we can seize the various opportunities ahead.
"We are excited about our future growth opportunity and more confident than
ever that our commitment to value and tireless focus on improving the
experience for our home-loving customers will leave us well placed to deliver
sustainable growth in the future."
1 Digital includes home delivery, Click & Collect and tablet-based sales
in store.
2 Free cash flow is defined as net cash generated from operating activities
less capex (net of disposals) and business combinations, net interest paid
(including leases) and loan transaction costs, and repayment of principal
element of lease liabilities. A reconciliation of operating profit to free
cash flow is included in the CFO review.
3 Excluding lease liabilities. Full definition provided in the table of
alternative performance measures.
(4) For statutory purposes FY22 included a 53(rd) week. Sales and sales growth
are shown on a comparable 52-week basis. On a 53-week basis FY22 sales were
£1,581m and sales growth was 4%.
(5) GlobalData UK combined homewares and furniture markets, excluding kitchen
and bathroom furniture. Market share for the period July 2022 to June 2023 was
7.2%.
(6) Growth in unique active customers who have transacted at least once in the
12 months to June 2023. Management estimates using Barclays data.
(7) Our Pathway to Zero commitments are described in more detail in the
sustainability section of our corporate website at
https://corporate.dunelm.com/sustainability
(https://corporate.dunelm.com/sustainability) .
(8) For statutory purposes FY22 included a 53(rd) week. Gross margin is shown
on a comparable 52-week basis. On a 53-week basis FY22 gross margin was 51.2%.
(9) For statutory purposes FY22 included a 53(rd) week. PBT is shown on a
comparable 52-week basis. On a 53-week basis FY22 PBT was £213m.
(10) Ordinary dividends plus special dividends plus special distributions.
Analyst Presentation:
There will be an in-person presentation for analysts and institutional
investors this morning at 9.30am, hosted at Peel Hunt LLP, 100 Liverpool
Street, London, EC2M 2AT, as well as a webcast and conference call with a
facility for Q&A. For details, please contact pauline.guenot@mhpgroup.com
(mailto:pauline.guenot@mhpgroup.com) . A copy of the presentation will be made
available at https://corporate.dunelm.com (https://corporate.dunelm.com) .
For further information please contact:
Dunelm Group plc investorrelations@dunelm.com
Nick Wilkinson, Chief Executive Officer
Karen Witts, Chief Financial Officer
MHP 07595 461 231
Oliver Hughes / Rachel Farrington / Charles Hirst dunelm@mhpgroup.com
Next scheduled event:
Dunelm will release its first quarter trading update on 19 October 2023.
Quarterly analysis:
52 weeks to 1 July 2023
Q1 Q2 H1 Q3 Q4 H2 FY
Total sales £356.7m £478.3m £835.0m £423.3m £380.5m £803.8m £1,638.8m
Total sales growth -8.3% 17.6% 5.0% 6.1% 6.1% 6.1% 5.5%
Digital % total sales 33% 35% 34% 36% 39% 37% 36%
52 weeks to 25 June 2022
Q1 Q2 H1 Q3 Q4(11) H2(11) FY(11)
Total sales £388.8m £406.8m £795.6m £399.0m £358.5m £757.5m £1,553.1m
Total sales growth 8.3% 12.9% 10.6% 68.6% -5.7% 22.8% 16.2%
Digital % total sales 33% 33% 33% 35% 37% 36% 35%
(11) FY22 results shown on a comparable 52-week basis. On a 53-week basis, Q4
sales were £386.7m and full year sales were £1,581.4m.
Notes to Editors:
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. The
business has grown to 180 stores across the UK and has developed a successful
online offer through dunelm.com which includes home delivery and Click &
Collect options. 152 stores now include Pausa coffee shops, where customers
can enjoy a range of hot and cold food and drinks.
From its textiles heritage in areas such as bedding, curtains, cushions,
quilts and pillows, Dunelm has built a comprehensive offer as 'The Home of
Homes' including furniture, kitchenware, dining, lighting, outdoor, decoration
and DIY. The business predominantly sells specialist own-brand products
sourced from long-term, committed suppliers.
Dunelm is headquartered in Leicester and employs over 11,000 colleagues. It
has been listed on the London Stock Exchange since October 2006 (DNLM.L)
and the business has returned over £1bn in distributions to shareholders in
the last ten years(12).
(12) Ordinary dividends plus special dividends plus special distributions.
CHAIR'S STATEMENT
In my first set of full year results with Dunelm, I am delighted to report
another year of strong sales growth and market share gains. The last year has
undoubtedly been challenging for UK consumers and businesses alike. I have
been hugely impressed by the energy and enthusiasm with which our team has
approached these challenges, delivering a strong performance for our
stakeholders whilst continuing to think long-term and investing for the future
in light of the many opportunities we see on the horizon. We have maintained a
focus on all our key stakeholders: delighting our loyal customers, and
attracting new ones, by delivering quality and value; strengthening
relationships with our suppliers and partners; supporting our colleagues and
the communities we serve; as well as generating strong shareholder returns.
Alongside this, we are also making good progress towards our long-term
sustainability goals.
This performance would not have been possible without the individual
contributions of our more than 11,000 colleagues, across stores, logistics,
manufacturing, customer service and support centres. I would like to thank
them all for their ongoing hard work and dedication to the business and our
customers, and for their contribution to our unique, inclusive and positive
culture which continues to help us thrive.
Performance
FY23 saw record sales of £1.64bn, reflecting a strong performance in an
extremely challenging environment. As ever, we believe that the strength and
relevance of our product range is a significant advantage, helping us to
provide outstanding value to our customers, to grow our sales and win market
share.
Our sales grew by 6%(13), and our overall market share increased to 7.2%(14),
with gross margin of 50.1%. Profit before tax was robust at £193m (FY22:
£209m)(15), which is particularly pleasing given the impact of operating cost
inflation and our ongoing investment in the business. Our profit before tax
margin of 11.8% (FY22: 13.5%(15)) was robust, demonstrating the underlying
resilience of the business and tight operational controls.
(13) For statutory purposes FY22 included a 53(rd) week. Sales growth shown is
on a comparable 52-week basis. On a 53-week basis sales growth was 4%.
(14) GlobalData UK combined homewares and furniture markets, excluding kitchen
and bathroom furniture. Market share for the period July 2022 to June 2023 was
7.2%.
(15) For statutory purposes FY22 included a 53(rd) week. FY22 PBT and PBT
margin are shown on a comparable 52-week basis. On a 53-week basis FY22 PBT
was £213m and PBT margin was 13.5%.
Dividends
Consistent and strong cash generation remains an impressive quality of
Dunelm's business model. This year, the Board has proposed a final ordinary
dividend of 27 pence per share, reflecting our strong profitability and
ongoing confidence in the business. This brings the full-year ordinary
dividend to 42 pence per share, an increase of 5% and within the range of
1.75x to 2.25x dividend cover(16) stated in our capital and dividend policy.
We also paid a special dividend of 40 pence per share in April. In all, we
returned £163m of cash in dividends during the year.
We have now returned more than £1bn(17) to shareholders in the last ten
years, demonstrating our consistent performance and highly cash generative
business model.
(16) Dividend cover is calculated as earnings per share divided by the total
ordinary dividend relating to the financial year.
(17) Ordinary dividends plus special dividends plus special distributions.
Doing the right thing
We build sustainability into all that we do, embedding a long-term mindset of
doing the right thing through our decisions and processes, with a view to
delivering for all our stakeholders. You will be able to read more detail in
our upcoming 2023 Sustainability Report about our progress, objectives and
future plans.
We strive to achieve product mastery across our categories, which increasingly
involves innovation to make our products more sustainable. A fantastic example
of this is Conscious Choice, a label we introduced in 2022 to showcase
own-brand products that are made from at least 50% (by weight) more
sustainable materials than their comparable alternatives. Conscious Choice
options now account for c.15% of own-brand products across our categories and
we have plans to expand this further.
We are also working in our stores and supply chain to reduce carbon emissions,
continuing to replace gas fired heating equipment, putting in place energy
management systems, and starting to use vehicles powered by more sustainable
fuel, including electricity and compressed natural gas, in our distribution
fleet. As a result, we have seen a further reduction in Scope 1 carbon
intensity, ahead of our targets.
Combining sustainability with customer engagement in our communities is
another positive way in which we reduce our impact on the planet, working
towards circularity. We now offer a textiles take-back service in the majority
of our stores, with over 70 tonnes per month of materials being returned by
our customers. As we move towards product circularity, we extended the impact
of this scheme by working with one of our suppliers to turn these recycled
textiles, along with other recycled fibres, into products for our new 'Remade'
range. This year we have also trialled a new Home to Home initiative, which
rehouses our customers' pre-loved homewares.
We are still at an early stage in our sustainability journey, and recognise
there is much more to do, but we are pleased with the progress being made and
the commitment from colleagues across the business in this important area.
Board
I was delighted to join the Board as Chair Designate last September and take
on the role of Chair in January. I am very pleased with the diverse experience
we have across both our Executive and Non-Executive Directors and how this
continues to contribute to our performance.
I would like to thank and congratulate Andy Harrison, who stepped down as
Chair in January having joined the Board in 2014. Andy oversaw a period of
growth, particularly in organisational capability, which left a very strong
base from which we can build going forward.
Seizing the opportunity
I am proud of what the business has achieved in my first year, and also of its
aspirations for the future. We are very mindful that the consumer environment
remains challenging and uncertain in the near term. With the support of our
brilliant colleagues, we believe that we are well positioned to seize the
opportunity to bring value and joy to our growing base of customers across our
total retail system. As has been the case throughout Dunelm's history, we will
continue to invest wisely and to deliver for all our stakeholders, in order to
keep growing the business sustainably, for the long term.
Alison Brittain
Chair
20 September 2023
CHIEF EXECUTIVE OFFICER'S REVIEW
Introduction
I am very pleased by what we have achieved in a trading environment which
continues to present a variety of challenges. The macro-economic backdrop
during the year continued to bring uncertainty for colleagues, customers and
suppliers, with high levels of inflation presenting particular headwinds. The
adaptable approach we have taken during the last few years continues to serve
us well: executing successfully by pulling the levers within our control, and
maintaining good operational grip. This has allowed us to deliver strong
results for all stakeholders, grow market share, and also given us the ability
to keep investing for the future, so that we can seize the multiple
opportunities ahead of us.
Whether developing our proposition, strengthening our relationships, improving
our operations or serving our customers, it is the work of every colleague in
Dunelm and our partners that makes this happen. For contributing their
knowledge, personality, commitment and enthusiasm, I would like to sincerely
thank all of my colleagues. Together, we are creating an ever more inclusive
workplace which, alongside our shared values, is driving performance.
FY23 Review
A strong performance with relevance and value at its core
We delivered another strong performance in FY23. In a difficult environment
for our customers, where cost-of-living pressures were front and centre, we
sharpened our focus on relevance and value. In the first half of the year we
were able to offer customers products such as heated clothes airers and
thermal curtains to help them keep warm and manage their budgets when energy
costs were at their highest. We continually adapt and evolve our product
range, and our offer was just as relevant in the second half of the year, when
seasonal items such as garden furniture and decorations proved appealing.
The expansion of our range to approximately 70,000 product lines allows us to
meet more of our customers' needs for their homes, and our relentless focus on
offering outstanding value has remained as sharp as ever across all price
points. A good example of this during the period was quickly reducing prices
to pass freight cost savings back to our customers, with over 1,000 product
lines dropping in price in the spring.
By keeping relevance and value at the heart of our proposition, total sales
grew by 6% against the comparable 52-week period in FY22 (which also included
a particularly strong Q1 as Covid restrictions eased). Total sales were 49%
higher than FY19 (the last full year uninterrupted by the pandemic). Compared
to FY22, we had 2.8% more active customers(18) and our market share in the
combined homewares and furniture markets increased by 40bps in challenging
market conditions(19).
Gross margin of 50.1% (FY22: 51.2%(20)) was tightly managed through the year
and we stayed true to our principle of instilling operational grip across the
business. We saw more normalised customer behaviour during our Sale events and
carefully balanced the impact of higher cost prices with our commitment to
value. This resulted in a robust PBT performance of £193m (FY22: £209m on a
comparable 52-week basis), which was pleasing given the tough backdrop and
reflected both tight control of margin amidst inflation in our operating costs
and our ongoing commitment to investment for the future.
We generated strong free cash flow of £160m (FY22: £153m), allowing us to
declare a final dividend of 27p, bringing the total ordinary dividend for the
year to 42p, a year-on-year increase of 5%, reflecting our confidence in the
future performance of the business. We returned a total of £163m to
shareholders during the year, including a special dividend of 40p declared at
the interim results. This brings the total returned to shareholders over the
last decade to over £1bn(21).
(18 )Growth in unique active customers who have transacted at least once in
the 12 months to June 2023. Management estimates using Barclays data.
(19) GlobalData UK combined homewares and furniture markets, excluding kitchen
and bathroom furniture. Market share for the period July 2022 to June 2023 was
7.2%.
(20) For statutory purposes FY22 included a 53(rd) week. Gross margin is shown
on a comparable 52-week basis. On a 53-week basis FY22 gross margin was 51.2%.
(21) Ordinary dividends plus special dividends plus special distributions.
Delivering for all our stakeholders
We try to make decisions based on the needs and expectations of our key
stakeholders and are guided by our shared values.
Our committed colleagues are at the heart of our business. We understand that
the current environment is difficult for many of them, so during the year we
increased our support on financial wellbeing, with progressive pay increases,
additional support funds and advice on a range of financial matters. We have
also invested in learning and development opportunities to promote a 'learning
for life' mindset to help colleagues to develop their careers. This continued
focus on colleague development saw us retain 87% of our colleagues through the
year(22). Listening and learning is one of our shared values and we undertake
a twice-yearly colleague survey. In FY23, we upgraded our colleague engagement
platform, making it two-way and encouraging colleagues to give direct feedback
to their line managers. We achieved a participation rate of 82%, making it our
most comprehensive survey to date and enabling us to achieve a deeper level of
understanding of our colleagues and to take more targeted action.
We relentlessly strive to improve our customer proposition. Product mastery
across our broad range of categories ensures that our offer remains relevant
throughout the year, and that we are offering quality and value at every price
tier. We also continued to develop our digital channels, giving customers even
more choice by adding c.20,000 lines to our website, and by enabling a more
convenient experience with new payment options such as Apple Pay and Klarna.
We deepened our relationships with customers in our store communities with
membership of our local Facebook groups increasing to over 1.1 million. Our
Christmas 'Delivering Joy' campaign was our most successful ever, with a
threefold increase in the number of gifts donated compared to FY22. We
significantly increased our charity fundraising with our customers and
colleagues helping to raise over £800k, of which over £700k was donated to
our charity partner, Mind.
We have always built long-term relationships with our suppliers and are
committed to offering them a strong partnership based on mutual growth and
respect. Together we are growing our shared knowledge on topics like supply
chain technology and sustainability, including the use of sustainably sourced
cotton.
As we learn more about how to reduce our impact on the planet, progress on our
Pathway to Zero(23) plan continues. We are making good progress on reducing
our carbon emissions, with our decarbonisation programme in stores
contributing to a further reduction in Scope 1 carbon intensity this year. We
are also transitioning our company car fleet to hybrid or electric vehicles.
We extended our Conscious Choice ranges, which are made from more sustainable
materials, to c.15% of our own brand range. We launched our first 'Remade'
products, using materials including those from our take-back schemes, our
first step towards product circularity. During FY23 we moved our environmental
accreditation to Better Cotton, who are industry leaders in this area. As a
result this was a year of transition during which we did not achieve our
target. We expect to see a significant improvement in FY24 as we complete our
transition and remain committed to sourcing c.100% more responsible cotton by
2025. Finally, we have now reduced our use of virgin plastic packaging by 36%
compared to FY20 by both reducing the amount of packaging we are using and
increasing the recycled content.
During the year, we submitted our targets to the Science Based Targets
initiative (SBTi) and were pleased to receive confirmation, after the year
end, that our near-term and net-zero targets have been approved by the
SBTi(24). This will see Dunelm align to the latest climate science from the
Intergovernmental Panel on Climate Change (IPCC) by limiting the global
temperature rise to 1.5°C.
(22) Retention is the percentage of colleagues from the start of the financial
year (July 2022) who remained employed until the end of the financial year
(June 2023), excluding any planned leavers.
(23) Our Pathway to Zero commitments are described in more detail in the
sustainability section of our corporate website at
https://corporate.dunelm.com/sustainability
(https://corporate.dunelm.com/sustainability) .
(24) Our targets approved by the SBTi are as follows. Overall Net-Zero Target:
Dunelm Group PLC commits to reach net-zero greenhouse gas emissions across the
value chain by FY40 from a FY19 base year. Near-Term Targets: Dunelm Group PLC
commits to reduce absolute Scopes 1 and 2 GHG emissions by 50% by FY30 from a
FY19 base year. Dunelm Group PLC also commits to reduce absolute Scope 3 GHG
emissions by 50% within the same timeframe. Long-Term Targets: Dunelm commits
to reduce absolute Scope 1, 2 and 3 GHG emissions by 90% by FY40 from a FY19
base year.
Seizing the opportunity
We are excited and ambitious about seizing the opportunity ahead of us to
continue to grow sustainably. Throughout our history, we have had a strong
track record of growing sales and market share, both in buoyant markets and in
more challenging conditions. Since our IPO in 2006, our sales have increased
by a compound annual growth rate of 10%, and in the last ten years more than
85% of this growth has been through market share gains. In the last year,
despite consumers being under considerable pressure, we continued to grow our
sales while the overall homewares market remained broadly flat, reflecting the
gains we made in market share.
Whilst we are the homewares market leader, we still hold only a c.7% share of
the UK homewares and furniture market that is worth a total of c.£24bn(25).
This significant market is highly fragmented, giving us the opportunity to
serve many different product categories and multiple customer missions. Our
most established categories have higher market shares, which we are confident
of growing further still; at the same time we have an opportunity to increase
our share in those more nascent categories where we are currently less well
established.
We are developing and implementing our plans at a time when consumer interest
in the home remains high despite cost-of-living pressures. Customers are
seeking propositions that meet their ever-evolving emotional and functional
needs. Multi-channel shopping is now fully established in homewares, and those
businesses that have an effective total retail system with seamless
integration between their online and store channels, as we do, have a clear
advantage. We have a strategic plan which will enable us to capitalise on all
of these themes and seize the opportunity for sustainable growth. I give an
update below on some of our key priorities.
(25) GlobalData UK combined homewares and furniture markets, excluding kitchen
and bathroom furniture. Market share for the period July 2022 to June 2023 was
7.2%.
A plan for sustainable growth
With our significant market share runway and deep understanding of our
customers and product categories, I have never been more excited about our
plans for the future as we seize the opportunity to:
1. Strengthen our customer offer
2. Extend and digitalise our total retail system
3. Evolve our marketing ecosystem
1. Strengthening our customer offer
We are constantly striving to improve all parts of our customer offer; however
we are focusing our efforts in two particular areas: offering outstanding
value and helping to deliver joy to our customers, through our products,
services and customer experience.
Value
We work tirelessly on our range architecture to offer customers value at all
price points. A good example of this is in our range of Egyptian cotton
towels, where we held prices a year ago despite cost prices increasing. At the
same time, we introduced a new 'Super Soft' range in our lowest priced 'good'
quality tier. These initiatives resulted in gains in our volume share of the
bathroom textiles category. We also demonstrate value across the range by
reducing prices as input costs fall. During the year we reduced prices on a
number of our furniture lines and lowered prices on many products across other
categories in the spring.
For us, and for our customers, value is equally important at higher price
tiers. We can see this in attitudes towards product quality and also towards
sustainability. Where we have introduced more sustainable materials into many
of our ranges we have typically maintained, or even reduced, retail prices.
For example, we reduced the price of our Dorma 300 thread count fitted sheet
whilst re-sourcing to a more sustainable cotton, and our Teddy throws are now
made from recycled polyester at no extra cost to our customers. We also
extended the higher quality tiers in our cushions category, with new
compositions using beading, sequin embroidery and wool blends, all
hand-crafted in India. These new and innovative designs enabled us to stretch
our price points while continuing to offer outstanding value for money.
As we grow our offer into new areas, we remain highly focused on ensuring
value at all price points, even within more nascent categories. We have
increased our curated range by approximately 20,000 products in the last year
with the same product quality and price focus. We will continue to grow our
ranges in this way, with further additions in categories such as nursery
furniture and live plants.
Joy
Alongside outstanding value, we are equally focused on delivering joy for our
customers. While shoppers will work hard to be savvy, looking for ways to save
and balancing price and quality to meet their budget, they are also looking
for their experiences and purchases to bring them joy.
Our efforts to deliver this are reflected in how we talk to customers in store
(we track 'fast' and 'friendly' feedback scores for every shop), how our
marketing content does not take itself too seriously, and by the selection of
food and offers in our Pausa cafes (for example the giant coronation jammy
dodgers). However, we also offer joy in our product development, in a way that
few other product companies would do. One way to bring joy is through colour,
which we have embraced in our new 'pride and joy' collections for
autumn/winter 2023. We have also extended our collaboration with the Natural
History Museum to bring customers products with personality, and grown our
Disney ranges, introducing Mickey Mouse designs across a number of categories.
The joy of products also requires us to ensure our customers have a
high-quality shopping experience, so reducing disappointment when something
goes wrong is also a focus. We are growing our home delivery perfect order
rates, shortening lead-times, and resolving problems efficiently when things
do not go as planned.
2. Extending and digitalising our total retail system
One of the key advantages of our business model is what we call our total
retail system, which combines the benefits of physical stores with the
convenience of online shopping, and the reach of our marketing ecosystem.
Whilst digital sales have increased in recent years (now accounting for 36% of
total sales) our stores remain fundamental to our success, not least by
fulfilling an increasingly important role in marketing to, and being a part
of, their local communities.
We have continued to expand our store estate, with three new openings last
year and our 180(th) store in Greenwich, south-east London, opening after the
year end. The ongoing programme to refit our older stores to the latest
standards for store environment and layout also continues with good paybacks.
The success of our recent openings and attractive return on investment is
encouraging, and we see opportunity to double the run rate of new (or
relocated) stores in the next two years.
The typical Dunelm superstore has approximately 30,000 sq ft of trading space
(including a 10,000 sq ft mezzanine floor) in an out-of-town location. We are
delighted with the returns we generate on stores like these, Weymouth being a
recent example. In recent years we have opened four smaller stores, averaging
c.15,000 sq ft, and two town-centre locations of around 30,000 sq ft. We are
seeing the same good returns across all these openings, with payback periods
averaging under three years.
With better data and insights to support location planning for new store
selection, we now expect to open five to ten new stores (including
relocations) in each of the next two years. These are full-service Dunelm
stores, amplifying our online offer and driving local customer awareness to
enable us to benefit fully from our total retail system. We will continue to
apply our usual discipline and tight operational grip to these investments.
At the same time, we continue to digitalise our total retail system to improve
our customer offer and increase the efficiency of our operations. In the last
six months we have been able to offer customers more convenient payment
options such as Klarna, shortened lead times through weekend deliveries and
improved our communications with customers. In addition to these improvements
to our customer offer, we have begun to roll out new product master data
management tools which will deliver benefits across our operations, and our
suppliers. Our new ChatBot has automated some post-sale service
communications, enabling more customers to self-serve.
Over the next 12 months we will further improve our website experience by
using new search tools, introducing faster site architecture and increasing
the options for delivery of furniture items. We will continue to expand our
product offer, with new ranges and made-to-measure categories as well as
launching further convenient payment options such as long-term credit. To
improve the efficiency of our operations, we will launch new tools for
forecasting and replenishment and improve the management of stock in our
warehouses, with both of these initiatives also increasing availability for
our customers. We will also increase our personalised communication with
customers, which we describe in more detail below.
3. Evolving our marketing ecosystem
During the year we deepened our understanding of consumer attitudes to the
home and home shopping, giving us greater insight into the customer
opportunity for our next phase of growth. Comprehensive research has allowed
us to better understand the attitudes of existing and target customers. For
example, whilst home continues be a strong focus for many households,
motivators can be very different, with home variously an expression of
personal style, a place of sanctuary, an opportunity to socialise, and a place
to spend time with family. The opportunity is to reach target customers with
more tailored and personalised messages which appeal to these motivators. At
the same time, growing awareness of the breadth of our category offer will
attract both new customers and increase the shopping frequency of existing
ones. At present, Dunelm is typically only top of mind (1(st), 2(nd) or 3(rd)
mention) for around half of the product categories we offer, demonstrating the
breadth of the opportunity.
We can reach these target audiences more effectively through our ever-evolving
marketing ecosystem. We continue to make progress towards a single combined
view of our store and online customers, with our online payments system to be
rolled out to stores in the first half of this financial year. In the meantime
we have a significant database of online customers and those store customers
who have provided an email address. We are combining data from multiple
sources, including demographics and previous purchasing behaviour, to begin a
more targeted and personalised level of marketing, including optimising the
timing of customer communications and customer-specific product
recommendations within marketing emails. We are also testing a more customised
website, where paid search will lead to a personalised dunelm.com landing
page with a greater range of options beyond the specifically searched-for
product. This activity is at an early stage and being approached with our
usual test and learn mindset, but we believe it provides exciting
opportunities for a better customer experience and future growth.
At the same time we continue to develop the effectiveness of our paid
marketing channels and have now performed testing on the effectiveness of most
of our brand and performance marketing spend. Tests conducted in the year have
given us the confidence to increase our brand marketing investment. Our new
brand campaign is launching this autumn and is our most ambitious ever.
Summary and Outlook
We delivered another strong performance in FY23 in a challenging environment.
We continued to think long term and invest for the future while delivering a
strong performance for our stakeholders. Record sales, continued growth in
market share and customer numbers, and good strategic progress were
underpinned by our tight operational grip on gross margin and costs.
Consumers are still responding to their own cost-of-living pressures and there
remains uncertainty as to what this means for discretionary spend. Against
this backdrop we remain focused on our proposition and ensuring our customer
offer is as relevant as ever. In that context, we are pleased with trading
early in the new financial year.
We have a clear plan for sustainable growth and the work we are doing to
strengthen our customer offer, extend and digitalise our total retail system
and evolve our marketing ecosystem leave us well positioned to capitalise on
the opportunities available for our business. We have never been more
confident about our short, medium and long-term prospects and will therefore
continue to invest where we see good returns, including in accelerating our
store estate growth.
We are excited to continue to deliver our strong performance record in the
year ahead.
Nick Wilkinson
Chief Executive Officer
20 September 2023
CHIEF FINANCIAL OFFICER'S REVIEW
Revenue
Total sales for the period to 1 July 2023 increased by 5.5% to £1,639m on a
comparable 52-week basis (FY22 52w: £1,553m, FY22 53w: £1,581m). Compared to
FY19 (the last fully comparable year before the pandemic), total sales grew by
49% (FY19: £1,100m).
FY23 YoY YoY
(52 weeks) (52w v 52w) (52w v 53w)
Total Group sales £1,638.8m +5.5% +3.6%
Digital % total sales 36% +1ppt +1ppt
FY23 YoY
Active customer growth(26) N/A +2.8%
Homewares market share(27) 11.0% +70bps
Furniture market share(27) 2.0% +0bps
We saw strong sales growth for the year despite the challenging market
conditions and particularly strong comparative in Q1 (due to our rescheduled
Summer Sale and pent-up demand following the final Covid related lockdown). We
were pleased to see growth increasingly from volume as we progressed through
the year. Sales increased both in stores and online, with digital sales now
making up 36% of total sales, up 16ppts since FY19.
Growth was broad based across categories as we focused on relevance and value
throughout the year. Customers enjoyed shopping our Winter Warm ranges as they
looked for ways to mitigate rising heating costs. Similarly, our Summer Living
collections, in particular garden furniture and decorations, performed well in
the warmer weather towards the end of the financial year. Our two main Sale
events also resonated with our home-loving customers. We continued to improve
and expand our offering, adding 20,000 carefully curated products online while
extending our Conscious Choice range of sustainability-focused lines.
We continued to focus on offering outstanding value to our customers across
all our categories and price points. As a result of our relentless focus on
value we were pleased to be able to pass on cost savings from lower freight
rates and reduce prices on over 1,000 lines in the final quarter of the year.
Our broad product offer continues to resonate well with our customers and the
number of active customers increased by 2.8%(26) in FY23, with an increase in
customer retention. We were pleased to see higher growth in the younger (16 to
24 years) and lower income (<£20k) groups, reflecting our growing appeal
and focus on value.
We continued to gain market share, with our sales growing year-on-year and our
share increasing by 40bps to 7.2%(27) against a combined market for furniture
and homewares which was broadly flat. We were pleased to grow share in
homewares by a further 70bps to 11.0%(27). Our market share in furniture,
where we have been building a stronger customer offer and operating model, was
broadly flat. Sales across our furniture categories increased by 4%
year-on-year, with a particularly strong performance in upholstery ranges
being partly offset by lower sales in cabinet categories.
(26) Growth in unique active customers who have transacted at least once in
the 12 months to June 2023. Management estimates using Barclays data.
(27) GlobalData UK homewares and furniture markets, July 2022 to June 2023.
Furniture excludes kitchen and bathroom furniture. FY22 has been restated.
Gross margin
Gross margin of 50.1% was in line with expectations and 110bps lower than last
year (FY22 52w: 51.2%, FY22 53w: 51.2%), reflecting both a return to more
normal patterns of customer behaviour in our Sale events as well as the impact
of higher input cost prices.
We have good visibility of FY24 input costs. We plan our purchasing for each
season, which helps us manage changes in raw material prices, freight costs
and foreign exchange within our margin rates. Looking ahead, we will continue
to balance the impact of these with our commitment to offering outstanding
value to our customers. We expect a net tailwind from these factors this year,
as well as the sustainable benefit from the operational actions we have taken
in recent years, and therefore expect gross margin in FY24 to be c.100bps
higher than FY23.
Operating costs
Total operating costs were £622m (FY22 52w: £582m, FY22 53w: £592m),
representing an operating cost:sales ratio of 38.0% (FY22 52w: 37.5%, FY22
53w: 37.4%).
We maintain a tight operational grip on costs and have worked hard to offset
inflationary impacts of c.£20m, mainly relating to wages, through operational
efficiencies. Efficiencies in stores and the supply chain, as well as the
removal of excess storage costs, and other small one-off impacts generated
savings of £18m.
Volume growth added £8m of costs to our distribution network and performance
marketing spend. The annualisation of investments during FY22 and new store
openings added £7m to operating costs in the period. Our investments in
recent years have delivered strong sales growth and so we continued to invest,
increasing spend by £22m on digitalisation and building new capability in
data, technology and insight and analytics.
We are focused on seizing opportunities for growth and will continue to deploy
resources thoughtfully in digitalisation, capability, and accelerating our
store roll out plans. We have been gaining new insight into the effectiveness
of our marketing spend and our data-led approach is giving us confidence to
invest more in areas such as brand marketing in order to expand our reach. We
will continue to invest in digitalising our total retail system as well as
expanding our store portfolio. We also expect inflationary pressures to
continue in FY24, which we will partially mitigate through productivity
improvements. While our focus remains on tight operational grip and making
every pound count, we expect our operating cost:sales ratio to increase to
c.39% in FY24.
Profit and earnings per share
Operating profit of £199m was £15m lower than the comparable period in FY22
(FY22 52w: £214m, FY22 53w: £218m), against a tough backdrop and reflected
both tight control of margin amidst inflation in our operating costs and our
ongoing commitment to investment for the future.
Net finance costs of £6m (FY22 52w: £5m, FY22 53w: £5m) included interest
on IFRS 16 lease liabilities of £5m (FY22 52w: £5m, FY22 53w: £5m).
Profit before tax in the period was £193m (FY22 52w: £209m, FY22 53w:
£213m), a reduction of £16m year-on-year on a comparable 52-week basis.
Profit after tax of £152m (FY22 52w: £168m, FY22 53w: £171m) reflected an
effective tax rate of 21.2% (FY22: 19.5%). The increase in the effective tax
rate is broadly in line with the increase to the UK headline rate of
corporation tax, which moved from 19% to 25% for the final three months of the
year. The effective tax rate was 70bps higher than the UK headline rate, due
to our usual items of disallowable expenditures.
In FY24 we expect PBT to be higher than FY23, and the effective tax rate to
continue to trend slightly above the headline rate of 25% from FY24.
Basic earnings per share (EPS) for the period was 75.2 pence (FY22 52w: 83.0
pence, FY22 53w: 84.5 pence). Diluted earnings per share was 75.0 pence (FY22
52w: 82.1 pence, FY22 53w: 83.6 pence).
( )
Cash generation and net debt
In the period, the Group generated £160m of free cash flow (FY22: £153m),
with strong conversion of operating profit to free cash flow of 81% (FY22:
70%).
FY23 (52 weeks) FY22 (53 weeks)
£m £m
Operating profit 198.8 217.7
Depreciation and amortisation(28) 79.4 79.3
Net movement in working capital (4.2) (14.8)
Share-based payments 4.8 4.8
Tax paid (38.2) (35.2)
Net cash generated from operating activities 240.6 251.8
Capex and business combinations (21.8) (41.7)
Net interest and loan transaction costs(29) (1.1) (2.1)
Interest paid on lease liabilities (5.3) (4.8)
Repayment of principal element of lease liabilities (52.0) (50.2)
Free cash flow 160.4 153.0
(28) Including impairment and loss on disposal.
(29 )Excluding interest on lease liabilities.
There was a small working capital outflow of £4m in the period (FY22: £15m
outflow). The prior year outflow reflected the decision to build inventory in
order to mitigate the risk of further supply chain disruption. Whilst
inventories at the end of FY23 of £211m (FY22: £223m) were lower than FY22,
the resulting working capital inflow was broadly offset by a reduction in
payables due to lower accruals, including freight accruals. We expect working
capital in FY24 to be broadly stable.
Total capital investment of £22m (FY22: £42m) primarily related to £19m
spent on the three new stores opened in the period, refits of ten existing
stores, and our decarbonisation initiatives. FY22 included £18m paid to
acquire the trade and assets of Sunflex, a division of Hunter Douglas (UK)
Limited. We expect to increase the rate of new store openings to five to ten
(including relocations) in FY24, therefore capital expenditure will increase
to c.£30-40m.
Cash tax paid was £38m (FY22: £35m) reflecting the higher effective tax
rate. FY22 also included cash receipts in relation to research and development
claims made at the end of FY21.
In the period, the Group spent £7m (FY22: £28m) purchasing shares to be held
in treasury to satisfy future obligations under its employee share schemes.
The Group held 1.7m shares in treasury as at 1 July 2023.
After total dividend payments in the period of £163m (FY22: £282m), the
Group ended the year with net debt(30) of £31m (FY22: £24m).
(30) Excluding lease liabilities. Full definition provided in the table of
alternative performance measures.
Banking agreements
At the year end date, the Group had in place a £185m sustainability-linked
unsecured revolving credit facility ("RCF"). The terms of the RCF included
covenants in respect of leverage (net debt(31) to be no greater than 2.5×
adjusted EBITDA(32)) and fixed charge cover (EBITDAR(33) to be no less than
1.75× fixed charges(34)), both of which were met comfortably as at 1 July
2023.
Since the year end the Group has renegotiated its RCF, extending the limit to
£250m to reflect the growth in the business in recent years. The maturity
date is September 2027 with an option to extend by a further two years
at Dunelm's request, subject to lender consent. The terms are consistent
with normal business practice and the covenants are unchanged. In addition,
the Group maintains £10m of uncommitted overdraft facilities.
(31) Excluding lease liabilities. Full definition provided in the table of
alternative performance measures.
(32 )Adjusted EBITDA defined as EBITDA less depreciation on right-of-use
assets.
(33 )EBITDAR defined as EBITDA plus rent.
(34 )Fixed charges are defined as net interest costs plus right-of-use asset
depreciation plus rent.
Going concern
At the time of approving the financial statements, the Board of Directors is
required to formally assess that the business has adequate resources to
continue in operational existence and as such can continue to adopt the 'going
concern' basis of accounting. To support this assessment, the Board is
required to consider the Group's current financial position, its strategy, the
market outlook, and its principal risks.
The key judgement that the Directors have considered in forming their
conclusion is the potential impact on future revenue, profits and cash flows
of a downturn in consumer spending, away from homewares, due to the current
economic environment. This scenario might result in no growth in Year 1, and
lower sales and margin across all channels throughout the five-year review
period. They have also considered a deeper downturn in consumer spending away
from homewares, resulting in negative growth in Year 1 and lower sales and
margin across all channels throughout the review period.
In both downside scenarios Dunelm has sufficient liquidity to continue
trading, including maintaining the payment of dividends in line with its
dividend policy, and to comfortably meet its financial covenants. The
Directors continue to assess the risks that climate change poses to the
business and climate change is not expected to have a significant impact on
the Group's going concern assessment or on the viability of the Group over the
next five years.
Reverse stress modelling has demonstrated that a prolonged sales reduction of
23% in FY24 and 28% in FY25 is required to breach covenants by the end of FY25
and a reduction of 47% in both FY24 and FY25 is required to breach the RCF
limit by the end of FY25, assuming reasonable mitigating actions have been
implemented. The Directors do not believe the reverse stress tests represent
plausible scenarios. Even in such an event, management would follow a similar
course of action to that initially undertaken during the recent Covid-19
pandemic. Such actions could include further reductions in discretionary spend
(e.g. marketing and travel) and capital investment in new stores and refits,
and reducing headcount.
As a result, the Board believes that the Group is well placed to manage its
financing and other significant risks satisfactorily and that the Group will
be able to operate within the level of its facilities and meet its liabilities
as they fall due, for at least the next five years. For this reason, the Board
considers it appropriate for the Group to adopt the going concern basis in
preparing its financial statements.
Capital and dividend policies
The Board policy on capital structure targets an average net debt level
(excluding lease obligations and short-term fluctuations in working capital)
of between 0.2× and 0.6× the last 12 months' EBITDA(35). The Group's
dividend policy targets ordinary dividend cover of between 1.75× and 2.25×
earnings per share during the financial year to which the dividend relates.
The Board will continue to consider returning surplus cash to shareholders if
average net debt, excluding lease liabilities, over a period, consistently
falls below the minimum target of 0.2× EBITDA(35), subject to known and
anticipated investment and expenditure plans at the time.
The Group's full capital and dividend policies are available on our website at
corporate.dunelm.com (http://www.corporate.dunelm.com) .
(35 )EBITDA defined as operating profit plus depreciation and amortisation of
property, plant and equipment and intangible assets plus loss on disposal and
impairment of property, plant and equipment and intangible assets plus
depreciation on right-of-use assets.
Dividends
The Board has proposed a final ordinary dividend of 27 pence per share,
recognising our strong performance in the year and our ongoing confidence in
the business. This takes the full year ordinary dividend to 42 pence per
share, 5% ahead of the 40 pence per share paid in FY22, with dividend
cover(36) of 1.8×, which is within the range of our stated policy. The final
dividend will be paid on 20 November 2023 to shareholders on the register on
27 October 2023, subject to it being approved by shareholders at the AGM.
We paid total dividends of £163m in the year, including a special dividend of
£81m.
(36) Dividend cover is calculated as earnings per share divided by the total
ordinary dividend relating to the financial year.
Principal risks and uncertainties
The Board regularly reviews and monitors the risks and uncertainties which
could have a material effect on the Group's results.
This year we separated 'business change risk' from the 'IT systems, data, and
cyber risk' to reflect our ongoing investment in change programmes that are
key to our strategy and the delivery of further growth and efficiencies. We
consider this an increasing risk in the short-term as we take on larger and
more complex projects. However, it is anticipated that the risk will stabilise
as we continue to deliver.
We removed 'catastrophic business events' as a standalone principal risk. The
impact of, and approach that we would take, to large disruptive events has
been considered as part of our review and ongoing management of each of the
other principal risks. Our approach is supported, amongst other things, by
learnings from our response to the pandemic and our business continuity plans.
A summary of the principal risks has been provided below:
Risk Impact
Customer offer Ongoing external uncertainty and inflationary pressure on consumers has led to
significant change in consumer behaviour. Failure to respond to changing
consumer needs and to maintain a competitive offer (value & choice,
friendly & expert, fast & convenient and good & circular) will
undermine our ambition to increase market share and drive profitable and
sustainable growth.
Product reputation and trust Our stakeholders expect us to deliver products that are safe, compliant with
legal and regulatory requirements, and fit for purpose. Our customers are
increasingly aware of the environmental and social impact of their purchases
and want to know that our products have been responsibly sourced and that
their environmental impact is minimised.
Nonconformance by our suppliers to uphold our approach to business ethics,
human rights (including safety and modern slavery) and the environment may
undermine our reputation as a responsible retailer.
Failure to meet these expectations could result in reputational damage and
loss of confidence in Dunelm.
People and culture Our business could be adversely impacted if we fail to attract, retain, and
develop colleagues with the appropriate skills, capabilities and diverse
background.
Failing to embed and live our values could impact business performance, the
delivery of our purpose and the long-term sustainability of our business.
IT systems, data and cyber security Our IT systems and infrastructure are critical to managing our operations,
interacting with customers, and trading successfully.
A key system being unavailable or suffering a security breach could lead to
operational difficulties, loss of sales and productivity, legal and regulatory
penalties due to loss of personal data, reputational damage, and loss of
stakeholder trust.
Business change Dunelm recognises that there is a huge opportunity in digitalising the
business and has invested and will continue to invest in system improvements
to drive growth and efficiency.
Failing to successfully introduce and deliver wider technology and new systems
across the business and leverage the data generated to further improve our
proposition and operations could result in reduced operational efficiency,
competitiveness, relevance and growth. Furthermore, failure to deliver the
expected objectives on time and on budget, could impact the delivery of the
planned business benefits.
Regulatory and compliance We operate in an increasingly regulated environment and must comply with a
wide range of laws, regulations, and standards.
Failure to comply with or to take appropriate steps to prevent a breach of
these requirements could result in formal investigations, legal and financial
penalties, reputational damage and loss of business.
Supply chain resilience We are dependent on complex global supply chains and fulfilment solutions to
deliver products to our customers. Instability in the global supply chain or
failure of a key supplier may impact our ability to effectively manage stock
and satisfy customer demand.
Finance and treasury Progress against business objectives may be constrained by a lack of
short-term funding or access to long-term capital.
Climate change and environment Failure to positively change our impact on the environment would fall short of
the expectations of our customers, colleagues, shareholders, and other
stakeholders which could lead to reputational damage and financial loss.
In addition, an inability to anticipate and mitigate against climate change
and other environmental risks could cause disruption in the availability and
quality of raw materials such as cotton and timber, affecting production
capacity, product quality, and overall supply chain resilience. This, and
potential transition risks related to environmental taxation, could result in
higher costs, delays, and potential loss of customers.
Alternative performance measures (APMs)
APM Definition, purpose and reconciliation to statutory measure
Unique active customers growth Growth in unique active customers who have shopped in a 12-month period
compared to the prior 12-month period, based on Barclays transactional data.
Note that Barclays data represents approximately 10% of total Dunelm
transactions. To measure whether we are continuing to grow our active customer
base - from both new customers and retention of existing customers.
Total sales Equivalent to revenue (from all channels). This is net of customer returns.
Digital sales Digital sales include home delivery, Click & Collect and tablet-based
sales in store.
Digital % total sales Digital sales (as defined above) expressed as a percentage of revenue. This is
not a measure that we seek to maximise in itself, but we measure it to track
our adaptability to changing customer behaviours.
Ordinary dividend cover Ordinary dividend cover is calculated as earnings per share divided by the
total ordinary dividend relating to the financial year. This measure is used
in our capital and dividend policy.
Gross margin % Gross profit expressed as a percentage of revenue. Measures the profitability
of product sales prior to operating costs.
Operating costs to sales ratio Operating costs expressed as a percentage of revenue. To measure the growth of
costs relative to sales growth.
EBITDA Earnings before interest, tax, depreciation, amortisation and impairment.
Operating profit plus depreciation and amortisation of property, plant and
equipment, right-of-use assets and intangible assets plus loss on disposal and
impairment of property, plant and equipment and intangible assets. Used in our
capital and dividend policy.
Adjusted EBITDA EBITDA less depreciation on right-of-use assets. To measure compliance with
bank covenants
EBITDAR EBITDAR is calculated as EBITDA plus rent. To measure compliance with bank
covenants
Effective tax rate Taxation expressed as a percentage of profit before taxation. To measure how
close we are to the UK corporation tax rate and understand the reasons for any
differences.
Capex (net of disposals) Acquisition of intangible assets and acquisition of property, plant and
equipment less proceeds on disposal of property, plant and equipment and
intangibles.
Free cash flow Free cash flow is defined as net cash generated from operating activities less
capex (net of disposals) and business combinations, net interest paid
(including leases) and loan transaction costs, and repayment of principal
element of lease liabilities. Measures the cash generated that is available
for disbursement to shareholders.
Net cash/(debt) Cash and cash equivalents less total borrowings (as shown in note 12).
Excludes IFRS 16 lease liabilities.
Cash conversion Free cash flow expressed as a percentage of operating profit.
Karen Witts
Chief Financial Officer
20 September 2023
Consolidated Income Statement
For the 52 weeks ended 1 July 2023
2023 2022
52 weeks
53 weeks
Note £'m £'m
Revenue 1,638.8 1,581.4
Cost of sales (817.9) (772.0)
Gross profit 820.9 809.4
Operating costs 2 (622.1) (591.7)
Operating profit 3 198.8 217.7
Financial income 5 1.7 1.2
Financial expenses 5 (7.8) (6.1)
Profit before taxation 192.7 212.8
Taxation 6 (40.8) (41.6)
Profit for the period 151.9 171.2
Earnings per Ordinary Share - basic 8 75.2p 84.5p
Earnings per Ordinary Share - diluted 8 75.0p 83.6p
Consolidated Statement of Comprehensive Income
For the 52 weeks ended 1 July 2023
2023 2022
52 weeks
53 weeks
Note £'m £'m
Profit for the period 151.9 171.2
Other comprehensive (expense)/income:
Items that may be subsequently reclassified to profit or loss:
Movement in fair value of cash flow hedges (14.0) 32.4
Deferred tax on hedging movements 6.6 (5.3)
Other comprehensive (expense)/income for the period, net of tax (7.4) 27.1
Total comprehensive income for the period 144.5 198.3
Consolidated Statement of Financial Position
As at 1 July 2023
Note 1 July 2 July
2023
2022
£'m £'m
Non-current assets
Intangible assets 9 5.3 9.9
Property, plant and equipment 10 169.9 173.7
Right-of-use assets 11 231.3 248.5
Deferred tax assets 6.9 4.1
Derivative financial instruments - 4.6
Total non-current assets 413.4 440.8
Current assets
Inventories 211.0 223.0
Trade and other receivables 24.3 22.9
Current tax asset - 1.1
Derivative financial instruments 1.8 19.9
Cash and cash equivalents 46.3 30.2
Total current assets 283.4 297.1
Total assets 696.8 737.9
Current liabilities
Trade and other payables (208.1) (223.2)
Lease liabilities 11 (53.4) (52.8)
Current tax liability (0.2) -
Derivative financial instruments (7.9) -
Total current liabilities (269.6) (276.0)
Non-current liabilities
Bank loans 12 (75.9) (52.8)
Lease liabilities 11 (204.8) (225.3)
Provisions (5.9) (5.5)
Derivative financial instruments (3.1) -
Total non-current liabilities (289.7) (283.6)
Total liabilities (559.3) (559.6)
Net assets 137.5 178.3
Equity
Issued share capital 2.0 2.0
Share premium account 1.7 1.7
Capital redemption reserve 43.2 43.2
Hedging reserve (6.9) 20.2
Retained earnings 97.5 111.2
Total equity attributable to equity holders of the Parent 137.5 178.3
Karen Witts
Chief Financial Officer
20 September 2023
Consolidated Statement of Cash Flows
For the 52 weeks ended 1 July 2023
Note 2023 2022
52 weeks
53 weeks
£'m £'m
Cash flows from operating activities
Profit before taxation 192.7 212.8
Net financial expense 5 6.1 4.9
Operating profit 198.8 217.7
Depreciation and amortisation of property, plant and equipment and intangible 3 29.8 30.5
assets
Depreciation of right-of-use assets 3 49.3 48.6
Loss on disposal and impairment of property, plant and equipment and 3 0.3 0.3
intangible assets
Gain on disposal and impairment of right-of-use assets 3 - (0.1)
Share-based payments expense 4.8 4.8
Operating cash flows before movements in working capital 283.0 301.8
Decrease/(increase) in inventories 12.0 (40.3)
Increase in trade and other receivables (1.6) (7.7)
(Decrease)/increase in trade and other payables (14.6) 33.2
Net movement in working capital (4.2) (14.8)
Tax paid (38.2) (35.2)
Net cash generated from operating activities 240.6 251.8
Cash flows from investing activities
Acquisition of intangible assets (0.4) (0.7)
Acquisition of property, plant and equipment (21.4) (23.3)
Acquisition of business combination - (17.7)
Interest received 1.1 0.1
Net cash used in investing activities (20.7) (41.6)
Cash flows from financing activities
Proceeds from issue of treasury shares and Ordinary Shares 2.4 3.9
Purchase of treasury shares (7.0) (28.3)
Drawdowns on Revolving Credit Facility 139.0 85.0
Repayments of Revolving Credit Facility (116.0) (31.0)
Interest paid and loan transaction costs (2.2) (2.2)
Interest paid on lease liabilities 11 (5.3) (4.8)
Repayment of principal element of lease liabilities (52.0) (50.2)
Ordinary dividends paid 7 (163.3) (282.1)
Net cash used in financing activities (204.4) (309.7)
Net increase/(decrease) in cash and cash equivalents 15.5 (99.5)
Foreign exchange revaluations 5 0.6 1.1
Cash and cash equivalents at the beginning of the period 30.2 128.6
Cash and cash equivalents at the end of the period 46.3 30.2
Consolidated Statement of Changes in Equity
For the 52 weeks ended 1 July 2023
Note Issued share capital Share premium account Capital redemption reserve Hedging reserve Retained earnings Total equity attributable to equity holders of the Parent
£'m £'m £'m £'m £'m £'m
As at 27 June 2021 2.0 1.6 43.2 (4.3) 238.7 281.2
Profit for the period - - - - 171.2 171.2
Movement in fair value of cash flow hedges - - - 32.4 - 32.4
Deferred tax on hedging movements - - - (5.3) - (5.3)
Total comprehensive income for the period - - - 27.1 171.2 198.3
Proceeds from issue of shares - 0.1 - - - 0.1
Proceeds from issue of treasury shares - - - - 3.9 3.9
Purchase of treasury shares - - - - (28.3) (28.3)
Share-based payments - - - - 4.8 4.8
Deferred tax on share-based payments - - - - 0.8 0.8
Current tax on share options exercised - - - - 2.2 2.2
Movement on cash flow hedges transferred to inventory - - - (2.6) - (2.6)
Ordinary dividends paid 7 - - - - (282.1) (282.1)
Total transactions with owners, recorded directly in equity - 0.1 - (2.6) (298.7) (301.2)
As at 2 July 2022 2.0 1.7 43.2 20.2 111.2 178.3
Profit for the period - - - - 151.9 151.9
Movement in fair value of cash flow hedges - - - (14.0) - (14.0)
Deferred tax on hedging movements - - - 6.6 - 6.6
Total comprehensive income for the period - - - (7.4) 151.9 144.5
Proceeds from issue of treasury shares - - - - 2.4 2.4
Purchase of treasury shares - - - - (7.0) (7.0)
Share-based payments - - - - 4.8 4.8
Deferred tax on share-based payments - - - - (3.1) (3.1)
Current tax on share options exercised - - - - 0.6 0.6
Movement on cash flow hedges transferred to inventory - - - (19.7) - (19.7)
Ordinary dividends paid 7 - - - - (163.3) (163.3)
Total transactions with owners, recorded directly in equity - - - (19.7) (165.6) (185.3)
As at 1 July 2023 2.0 1.7 43.2 (6.9) 97.5 137.5
Accounting Policies
For the 52 weeks ended 1 July 2023
Basis of preparation
The financial statements presented cover a 52 week trading period for the
financial period ended 1 July 2023 (2022: 53 week period ended 2 July 2022).
The annual report and financial statements for the period ended 1 July 2023
were approved by the Board of Directors on 20 September 2023 along with this
preliminary announcement, but have not yet been delivered to the Registrar of
Companies. The financial information contained in this preliminary
announcement does not constitute the Group's statutory accounts within the
meaning of Section 434 of the Companies Act 2006.
The auditor's report on the statutory accounts for the period ended 1 July
2023 was unqualified and did not contain a statement under section 498 of the
Companies Act 2006.
The statutory accounts of Dunelm Group plc for the period ended 2 July 2022
have been delivered to the Registrar of Companies. The auditor's report on the
statutory accounts for the period ended 2 July 2022 was unqualified and did
not contain a statement under section 498 of the Companies Act 2006.
1. Revenue
The Group has one reportable segment, in accordance with IFRS 8 'Operating
Segments', which is the retail of homewares in the UK.
Customers access the Group's offer across multiple channels and their journey
often involves more than one channel. Therefore, internal reporting focuses on
the Group as a whole and does not identify individual segments.
The Chief Operating Decision-maker is the Executive Board of Directors of
Dunelm Group plc. The Executive Board reviews internal management reports on a
monthly basis and performance is assessed based on a number of financial and
non-financial KPIs as well as on profit before taxation.
Management believes that these measures are the most relevant in evaluating
the performance of the Group and for making resource allocation decisions.
All material operations of the Group are carried out in the UK. The Group's
revenue is driven by the consolidation of individual small value transactions
and as a result, Group revenue is not reliant on a major customer or group of
customers.
At the year end the Group had £13.8m (2022: £12.2m) of sales orders placed
that will be recognised in the Consolidated Income Statement when the goods
are despatched in the following financial year.
2. Operating costs
2023 2022
52 weeks
53 weeks
£'m £'m
Selling and distribution costs 489.7 469.4
Administrative expenses 132.4 122.3
622.1 591.7
3. Operating profit
Operating profit is stated after charging / (crediting) the following items:
2023 2022
52 weeks
53 weeks
£'m £'m
Cost of inventories included in cost of sales 803.4 765.3
Amortisation of intangible assets 4.6 6.2
Depreciation of owned property, plant and equipment 25.2 24.3
Depreciation of right-of-use assets 49.3 48.6
Loss on disposal and impairment of property, plant and equipment and 0.3 0.3
intangible assets
Gain on disposal and impairment of right-of-use assets - (0.1)
Expense related to short-term leases 1.6 0.6
The cost of inventories included in cost of sales includes the impact of a net
decrease in the provision for obsolete inventory of £0.8m (2022: £4.2m
increase) of which £0.7m decrease relates to Sunflex which was acquired in
May 2022 (2022: £2.6m increase).
The analysis of the auditor's remuneration is as follows:
2023 2022
52 weeks
53 weeks
£'000 £'000
Fees payable to the Group's auditor for the audit of the Parent and 34 46
consolidated annual financial statements
Fees payable to the Group's auditor and its associates for other services to
the Group
- Audit of the Company's subsidiaries pursuant to legislation 293 256
- Other assurance services 46 42
4. Employee numbers and costs
The average monthly number of people employed by the Group (including
Directors) was:
2023 2023 2022 2022
52 weeks
52 weeks
53 weeks
53 weeks
Number Full time Number Full time
of heads
equivalents
of heads
equivalents
Selling 9,446 5,252 9,544 5,437
Distribution 1,057 1,026 963 930
Administration 1,099 1,082 925 906
11,602 7,360 11,432 7,273
The aggregate remuneration of all employees (including Directors) comprises:
2023 2022
52 weeks
53 weeks
£'m £'m
Wages and salaries (including termination benefits) 224.8 211.1
Social security costs 16.1 14.4
Share-based payment expense 4.8 4.8
Pension costs - defined contribution plans 6.2 5.2
251.9 235.5
5. Financial income and expenses
2023 2022
52 weeks
53 weeks
£'m £'m
Financial income
Interest on bank deposits 1.1 0.1
Net foreign exchange gains 0.6 1.1
1.7 1.2
Financial expenses
Interest on bank borrowings (2.2) (0.9)
Amortisation of issue costs of bank loans (0.3) (0.4)
Interest on lease liabilities (5.3) (4.8)
(7.8) (6.1)
Net financial expense (6.1) (4.9)
6. Taxation
2023 2022
52 weeks
53 weeks
£'m £'m
Current taxation
UK corporation tax charge for the period 40.0 39.0
Adjustments in respect of prior periods 0.1 (0.2)
40.1 38.8
Deferred taxation
Origination of temporary differences 0.7 3.0
Adjustments in respect of prior periods 0.1 (0.2)
Impact of change in tax rate (0.1) -
0.7 2.8
Total tax expense 40.8 41.6
The tax expense is reconciled with the standard rate of UK corporation tax as
follows:
2023 2022
52 weeks
53 weeks
£'m £'m
Profit before taxation 192.7 212.8
UK corporation tax at standard rate of 20.5% (2022: 19.0%) 39.5 40.4
Factors affecting the charge in the period:
Non-deductible expenses 1.2 1.6
Adjustments in respect of prior periods 0.2 (0.4)
Impact of change in tax rate (0.1) -
Tax expense 40.8 41.6
The taxation expense for the period as a percentage of profit before tax is
21.2% (2022: 19.5%).
The UK Government substantively enacted an increase in the corporation tax
rate to 25.0% effective from 1 April 2023. The deferred tax asset as at 1 July
2023 has been calculated based on the rate of 25.0%.
7. Dividends
The dividends set out in the table below relate to the 1 pence Ordinary
Shares:
2023 2022
52 weeks
53 weeks
£'m £'m
Special dividend for the period ended 26 June 2021 - paid 65.0 pence - 131.9
Final dividend for the period ended 26 June 2021 - paid 23.0 pence - 46.8
Interim dividend for the period ended 2 July 2022 - paid 14.0 pence - 28.3
Special dividend for the period ended 2 July 2022 - paid 37.0 pence - 75.1
Final dividend for the period ended 2 July 2022 - paid 26.0 pence 52.4 -
Interim dividend for the period ended 1 July 2023 - paid 15.0 pence 30.2 -
Special dividend for the period ended 1 July 2023 - paid 40.0 pence 80.7 -
163.3 282.1
The Board is proposing a final dividend of 27 pence per Ordinary Share for the
period ended 1 July 2023 which equates to £54.5m. Subject to shareholder
approval at the AGM this will be paid on 20 November 2023 to shareholders on
the register at the close of business on 27 October 2023.
8. Earnings per Ordinary Share
Basic earnings per share is calculated by dividing the profit for the period
attributable to equity holders of the Company by the weighted average number
of Ordinary Shares in issue during the period, excluding Ordinary Shares
purchased by the Company and held as treasury shares.
For diluted earnings per share, the weighted average number of Ordinary Shares
in issue is adjusted to assume conversion of all dilutive potential Ordinary
Shares. These represent share options granted to employees where the exercise
price is less than the average market price of the Group's Ordinary Shares
during the period.
Weighted average numbers of shares:
2023 2022
52 weeks
53 weeks
'000 '000
Weighted average number of shares in issue during the period 201,917 202,722
Impact of share options 746 2,135
Number of shares for diluted earnings per share 202,663 204,857
2023 2022
52 weeks
53 weeks
£'m £'m
Profit for the period 151.9 171.2
Earnings per Ordinary Share - basic 75.2p 84.5p
Earnings per Ordinary Share - diluted 75.0p 83.6p
9. Intangible assets
Software Rights to brands and customer lists Total
development
and licences
£'m £'m £'m
Cost
At 27 June 2021 52.0 11.0 63.0
Additions 0.9 - 0.9
Acquisition through business combination - 0.5 0.5
Disposals (0.3) - (0.3)
At 2 July 2022 52.6 11.5 64.1
Additions 0.1 - 0.1
Disposals (0.7) - (0.7)
At 1 July 2023 52.0 11.5 63.5
Accumulated amortisation
At 27 June 2021 37.2 11.0 48.2
Charge for the financial period 6.2 - 6.2
Disposals (0.2) - (0.2)
At 2 July 2022 43.2 11.0 54.2
Charge for the financial period 4.5 0.1 4.6
Disposals (0.6) - (0.6)
At 1 July 2023 47.1 11.1 58.2
Net book value
At 27 June 2021 14.8 - 14.8
At 2 July 2022 9.4 0.5 9.9
At 1 July 2023 4.9 0.4 5.3
All amortisation is included within operating costs in the Consolidated Income
Statement.
There was no trigger for impairment in the period.
Within software development and licences there were no additions (2022: nil)
related to internally generated assets.
10. Property, plant and equipment
Freehold land and buildings Leasehold improvements Fixtures, fittings and equipment Total
£'m £'m £'m £'m
Cost
At 27 June 2021 97.7 157.7 124.2 379.6
Transfer - 1.2 (1.2) -
Additions 0.1 13.3 12.6 26.0
Acquisition through business combination 9.2 0.1 0.3 9.6
Disposals - (8.3) (3.7) (12.0)
At 2 July 2022 107.0 164.0 132.2 403.2
Transfer - 0.2 (0.2) -
Additions - 10.2 11.4 21.6
Disposals - (7.2) (3.1) (10.3)
At 1 July 2023 107.0 167.2 140.3 414.5
Accumulated depreciation
At 27 June 2021 18.1 91.9 107.0 217.0
Transfer - (0.5) 0.5 -
Charge for the financial period 1.8 14.4 8.1 24.3
Disposals - (8.1) (3.7) (11.8)
At 2 July 2022 19.9 97.7 111.9 229.5
Transfer 0.1 0.1 (0.2) -
Charge for the financial period 1.8 14.3 9.1 25.2
Disposals - (7.0) (3.1) (10.1)
At 1 July 2023 21.8 105.1 117.7 244.6
Net book value
At 27 June 2021 79.6 65.8 17.2 162.6
At 2 July 2022 87.1 66.3 20.3 173.7
At 1 July 2023 85.2 62.1 22.6 169.9
All depreciation charges have been included within operating costs in the
Consolidated Income Statement.
There was no trigger for impairment in the period.
11. Leases
Right-of-use assets included in the Consolidated Statement of Financial
Position at 1 July 2023 were as follows:
2023 2023 2023 2022
Land and buildings Motor vehicles, plant and equipment Total Total
£'m £'m £'m £'m
At the beginning of the period 240.4 8.1 248.5 262.0
Additions 20.3 12.0 32.3 35.3
Disposals (0.1) (0.1) (0.2) (0.2)
Depreciation (45.1) (4.2) (49.3) (48.6)
At the end of the period 215.5 15.8 231.3 248.5
Right-of-use additions did not include any lease modifications in the period
(2022: £3.1m).
Lease liabilities included in the Consolidated Statement of Financial Position
at 1 July 2023 were as follows:
2023 2023 2023 2022
Land and buildings Motor vehicles, plant and equipment Total Total
£'m £'m £'m £'m
At the beginning of the period (270.1) (8.0) (278.1) (293.3)
Additions (21.2) (12.0) (33.2) (35.9)
Disposals 0.1 0.1 0.2 0.1
Interest (4.9) (0.4) (5.3) (4.8)
Repayment of lease liabilities 53.6 4.6 58.2 55.8
At the end of the period (242.5) (15.7) (258.2) (278.1)
The discount rate applied across all lease liabilities ranged between 0.9% and
5.85% (2022: 0.9% and 2.8%). The discount rate reflects our incremental
borrowing rate which we assess by considering the marginal rate on the Group's
Revolving Credit Facility ('RCF'), the Bank of England base rate, the yield on
Government bonds and the term of the lease.
The maturity analysis of the lease liabilities is as follows:
2023 2022
£'m £'m
Current (53.4) (52.8)
Non-current (204.8) (225.3)
(258.2) (278.1)
The remaining contractual maturities of the lease liabilities, which are gross
and undiscounted, are as follows:
2023 2022
£'m £'m
Less than one year (65.8) (57.1)
One to two years (61.4) (53.2)
Two to five years (123.0) (111.9)
Five to ten years (78.9) (68.3)
More than ten years (3.7) (5.0)
Total undiscounted lease liability (332.8) (295.5)
The average remaining lease term of our leasehold land and buildings is 5.0
years (2022: 5.2 years).
The following amounts have been recognised in the Consolidated Income
Statement:
2023 2023 2023 2022
52 weeks
52 weeks
52 weeks
53 weeks
Land and buildings Motor vehicles, plant and equipment Total Total
£'m £'m £'m £'m
Depreciation of right-of-use assets 45.1 4.2 49.3 48.6
Gain on disposal of right-of-use assets - - - (0.1)
Interest expenses (included in financial expenses) 4.9 0.4 5.3 4.8
Expense relating to short-term leases 0.4 1.2 1.6 0.6
There was no trigger for impairment in the current year.
The total cash outflow for leases during the financial period was £57.3m
(2022: £55.0m).
12. Bank loans
2023 2022
£'m £'m
Total borrowings 77.0 54.0
Less: unamortised debt issue costs (1.1) (1.2)
Net borrowings 75.9 52.8
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