Dunelm (LSE: DNLM) released its provisional FY22 results yesterday. While a couple of key figures were missing — earnings per share (EPS), profit before tax (PBT), and expenses — the numbers that were disclosed point towards a positive year for the FTSE 250 firm. Consequently, Dunelm shares rose 5%.

A green rebound

So far, so good — that’s my main takeaway from Dunelm’s latest trading update. The company managed to beat a large number of analysts’ expectations, while delivering growth in its top line. As an investor, this is music to my ears. On a three-year basis, total sales are 41% higher, which shows that Dunelm is growing beyond its pre-pandemic levels rather substantially.

Additionally, Dunelm expects pre-tax profit to come in above the average consensus of £207m. The only bad figure in its top line report seemed to be the 6% year-on-year sales decline in Q4. Nonetheless, this was down to tough comparisons from pandemic reopening tailwinds, and was still above analysts’ estimates.

There wasn’t much information on the retailer’s bottom line, however. Management only disclosed its gross margin, which is expected to fall by 0.4% to 51.2%. This seems to be the only metric that missed estimates of 51.7% for now. Nevertheless, the board expects its gross margin to return to its long-term average in FY23. More details will be available on 14 September when the firm releases its full earnings report.

Lighting it up

Aside from stellar top-line numbers, Dunelm also has a number of developments lined up. For one, it opened and retrofitted four new stores last year. Additionally, it’s aiming to upgrade its digital functionalities to improve customers’ experiences. Moreover, it’s planning to strengthen its product capabilities, bringing better value proposition to its customers. These steps should help it capture more market share.

Furthermore, outgoing Whitbread CEO Alison Brittain was announced as an independent non-executive directors and chair designate. This is excellent news as I believe Brittain’s arrival on the board will help Dunelm grow while maintaining healthy margins in a high-inflationary environment. Her considerable experience and expertise from running a range of consumer-facing companies should come in useful.

Putting worries to bed?

Despite declining retail sales data in recent months, I identified Dunelm as an outlier to outperform its peers, given its growing base of customers, low average prices, and standout quality. This was evidenced in Dunelm’s sales performance, which beat the industry average on an annual basis (16% vs -4%), and three-year basis (41% vs 6%). This goes to show the British firm’s resilience in the current macroeconomic environment, amid declining sales in household goods stores. CEO Nick Wilkinson even mentioned that sales in the first half of July are off to a solid start.

Taking everything into consideration, are Dunelm shares a solid investment? I think so. For now, the company is hitting all the right notes, and I’m eager to see whether its EPS will beat estimates amid the current inflationary environment. If it somehow does, its current price of £8.60 and 4% dividend yield is going to seem like a steal. So, on the basis of these numbers, I’ll be looking to buy more Dunelm shares for my portfolio.

The post Are Dunelm shares a solid investment? appeared first on The Twelfth Magpie.

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John Choong owns shares of Dunelm. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Boris Johnson’s Conservative government announced a new, Help to Build scheme late last week. The new proposal is meant to help Britons get onto the property ladder amid the increase in house prices outstripping wage growth. So, here are three FTSE shares that I think stand to gain from this new programme.

Grafton

Grafton (LSE: GFTU) is a FTSE 250 constituent, and could be a beneficiary from the Help to Build scheme. This is because, unlike Help to Buy, the new initiative won’t directly benefit property developers such as Barratt and Taylor Wimpey. The loan is only available for houses built by self-builders and custom builders. As the scheme is set to last until 2026, the group could end up benefiting from a long-lasting tailwind.

Grafton is a builders merchant that sells all sorts of goods required to build a house. These include building materials, timber, decor, DIY items, and pipes. Its manufacturing segment only accounts for 5% of its revenue, so I expect the business’ distribution segment to fair better from the new builds. Not to mention, its history of producing healthy profit margins makes it an attractive stock for me to purchase. However, it’s worth noting that the current cost-of-living crisis could hamper sales figures.

Breedon

Breedon (LSE: BREE) is the UK’s largest independent construction materials firm. It is listed on the FTSE AIM index. The company produced a combine 31.6m tonnes of cement and aggregates in 2021. But more importantly, the board expects further growth this year.

Constructing a new house typically uses more than a 100 tonnes of cement and aggregates. Therefore, I expect the Help to Build scheme to act as a tailwind for the FTSE firm. That being said, Breedon’s revenue doesn’t just stem from building houses. It paves roads and builds other infrastructure as well. Given how well the S&P Global/CIPS UK Construction Purchasing Managers Index (A measure of how well the construction sector is doing) has been performing, Breedon shares could improve in the long term. Its share price also currently trades at a decent price-to-earnings (P/E ratio) of 13, so I see this as a buying opportunity for me.

Dunelm

Inflation continues to run rampant. Thus, new home owners will be looking for bargains in furniture. Thankfully, FTSE 250 staple Dunelm (LSE: DNLM) provides exactly that. Its everyday necessities have an average price of £6, while its furniture has a low average price of £120.

Management has stated its goal of bringing better value proposition to its customers too. This is evident as Dunelm introduced more entry price products and promotional buys, which should entice more customers and purchases.

The retailer still has to compete with IKEA though, as its competitor offers cheaper products in certain categories. That being said, consumers still seem to prefer shopping at Dunelm. This is due to its excellent customer service, such as cheaper deliveries. On that account, as long as Dunelm can maintain its competitive prices and good customer service, I see it being one of the few FTSE shares riding the tailwinds of the new Help to Build scheme.

The post 3 FTSE shares I’m buying with the Help to Build scheme! appeared first on The Twelfth Magpie.

More reading

• 3 shares to consider holding in a SIPP for decades
• How much must investors put into this overlooked FTSE dividend star to make an annual second income of £8,686?

John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Dunelm (LSE: DNLM) shares are already down 40% this year. As economic headwinds continue to pick up, retailers are expected to face a decline in revenue and profits. As such, the Dunelm share price may plunge further into the red.

Retail sales tail off

Earlier this week, the BRC retail sales data showed a third consecutive month of declines. Consumers continue to cut spending amid the cost of living crisis, and it doesn’t seem that Dunelm is spared from this. The chief executive of BRC, Helen Dickinson, noted that high-value items such as furniture took the biggest hit.

The rising cost of living is going to remain the main story for retailers for the immediate future, with consumer confidence a key factor to watch out for.

Source: Paul Martin, UK Head of Retail at KPMG

As a result of this, analysts across the board slashed their expectations for the FTSE 250 firm’s future earnings. Dunelm was initially pencilled in for 1% growth this year. However, earnings are now expected to decline by 0.6% after a slew of negative economic data.

Sticking to old furniture

To make matters worse, Dunelm has plenty of other headwinds to contend with. Increase in house prices from a lack of supply means that there are fewer new homes available for people to move into. Moreover, the mortgage rate also saw an increase to 4.25% this week, hindering future home purchases. Additionally, inflation continues to run rampant at 9% on a year on year basis, squeezing consumers’ wallets even further.

How might all this affect the Dunelm share price then? Well, fewer new homes would mean less demand for new furniture and, consequently, less revenue. The lack of disposable income will then result in a slowdown in furniture spend, as evidenced in the BRC retail sales data. As such, I expect Dunelm shares to take a hit.

A new chair

On the flip side, Dunelm hired a new CFO this week in Karen Witts. Having held a number of executive positions at couple of other FTSE 100 companies, I am excited to see how Witts can further improve the company’s already robust balance sheet.

The retailer’s balance sheet is impeccable to say the least. Having no debt and healthy levels of free cash flow, Dunelm has more than enough firepower to combat a potential economic recession later this year. The company has also managed to increase its profit margins from 8.3% to 10.3% over the last two years. As such, I’m eager to see how the new CFO deals with a potentially declining top line to maintain its margins, while satisfying Dunelm’s goal to gain more market share.

With the furniture and home improvement sector having previously defied a declining retail sales trend, Dunelm may be an outlier in the current economic landscape as it offers excellent value for its products. Nonetheless, I remain dubious of its future outlook given the volatile and uncertain economic climate. Therefore, I’ll be waiting for its next trading update before deciding whether to invest in Dunelm shares. Instead, I’ll be looking to purchase other shares that could benefit my portfolio with more certainty.

The post Could Dunelm shares be in further trouble? appeared first on The Twelfth Magpie.

More reading

• 3 shares to consider holding in a SIPP for decades
• How much must investors put into this overlooked FTSE dividend star to make an annual second income of £8,686?

John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Despite many analysts’ predictions that the stock had exhausted its Covid tailwinds, Dunelm (LSE: DNLM) continues to report strong figures. Having said that, the stock is down 25% year to date (YTD). With fears of a slowing economy and cooling housing market, what’s next for the Dunelm share price? More importantly, could this be an opportunity for me to snatch up Dunelm shares on the cheap?

Sofa, so good

Despite the narrative that Dunelm was a Covid stock and that sales would drop back down once restrictions were lifted, the FTSE 250 company continues to impress. Its most recent earnings report showed a 25% increase in its earnings per share, with total sales up 10.6% year over year.

Dunelm’s gross margins also increased 0.8% as profit margins rose to 10.8%. Additionally, the company’s performance was so strong that it declared a special dividend of £0.37 per share, on top of the standard £0.14 dividend!

The homeware retailer also boasts a stellar balance sheet. It has a 0% debt-to-equity ratio with healthy cash levels. Pair that with a decent price-to-earnings (P/E) ratio of 14, and the Dunelm share price looks intriguing to me.

Dune and dusted?

Nevertheless, it’s worth noting that Dunelm faces substantial economic headwinds. Britain’s most recent GDP numbers were not bright, as the economy only expanded by a minuscule 0.1%. It doesn’t help either when the GfK consumer confidence number is reported to be at 2008 levels. Consumers are really starting to feel the heat of inflation on their wallets.

To make things worse, the increase in interest rates means there has been a decline in mortgage approvals, which would impact the Dunelm’s revenue. Fewer people buying new houses likely means fewer people buying new furniture.

However, all this data may not spell doom and gloom for Dunelm. While country-wide retail sales data for March showed a decline, the fine print showed that household goods stores saw a 2.6% increase in sales. In fact, compared to pre-Covid (February 2020) levels, retail sales were 2.2% higher.

This is backed up by Dunelm’s own figures, as it saw an 8.5% increase in active customer growth. I’d also make the case that Dunelm could stand to profit from a cooling housing market. This is because more people may be tempted to stay put and use their disposable income to improve their current homes instead.

Window of opportunity?

So, is the Dunelm share price trading at a fair level currently? Well, the Dunelm board is confident in its ability to navigate inflationary challenges. The firm expects second-half profits before tax to be in line with recently upgraded analysts expectations of £206m. The homeware firm’s long-term growth plans should see its share price rise, as its market share gains continue to outpace its rivals.

With its expansion into e-commerce and investments in its supply chain, analysts have given the stock an upgrade with an average price target of £15.52. All things considered, Dunelm does look very promising. Even so, I’ll be waiting for next month’s GDP and retail sales numbers before considering buying Dunelm shares for my portfolio.

The post Is the Dunelm share price a bargain? appeared first on The Twelfth Magpie.

More reading

• 3 shares to consider holding in a SIPP for decades
• How much must investors put into this overlooked FTSE dividend star to make an annual second income of £8,686?

John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.