Life getting harder for Dunelm and N Brown bounces back

Thursday, October 10, 2019 - 10:24

“The FTSE 100 dipped 0.5% to 7,134 as the rise of the miners wasn’t enough to offset weakness in packaging companies and various financial services businesses. Miners were rallying ahead of the US-China trade talks with investors still clinging on to hopes of an amicable resolution,” says Russ Mould, Investment Director at AJ Bell.

“On the currency markets, the pound advanced 0.2% against the US dollar at $1.2234 and among commodities oil fell 0.4% to $58.08 per barrel."

Dunelm

Dunelm’s first quarter trading update didn’t receive the kind of reception management may have expected.

“The home furnishings chain defied retail gloom to post a series of positive trading updates earlier in 2019 but the stalling share price suggests the strong performance has already been priced in by the market.

“And growth is slowing; sales were up more than 10% on a like-for-like basis in the 12 months to 29 June as management’s strategy of improving the customer experience, boosting its core brand and improving its online platform paid off.

“However the latest quarter showed like-for-like growth of 6.4%, which would still be the envy of many retailers, but arguably not enough to sustain the excitement behind the Dunelm story.

“And the quarter itself was a game of two halves with a strong start undermined by a weaker September as the increasingly uncertain backdrop started to bite.

“In many ways 2019 was set up to be a good year for Dunelm, with plenty of room to improve on a poor showing in 2018 linked to the integration of its 2016 acquisition of WS Group.

“Now the easy wins have been achieved, CEO Nick Wilkinson faces the task of steering the group through what could be an increasingly testing period.”

N Brown

“Steve Johnson could win the man of the match award in the latest game of retailers.

“The chief executive announced a new strategy for clothing seller N Brown earlier this year with a focus on getting the UK right instead of spreading itself too thinly with international operations. He also pledged to offer a better customer experience, better products and learn more from data.

“Half year results now show profit going in the right direction, triggering a large rally in the share price.

“Cynics may argue that revenue is still falling, net debt is rising and the dividend is not growing. However, there is a sense that Johnson has quickly stabilised the business and put it on a stronger footing to fight back.

“N Brown has advantage over many other UK retailers in that it is catering for a specific niche so there isn’t excess competition. It targets people aged over 50 and requiring size 20+. If it can offer good products and a pleasing shopping experience then there is a good chance that its customers will stay loyal.

“There are still plenty of challenges to overcome, including a reduction in relatively large levels of bad debt. A fairly chunky part of its profit comes from financial services and so it needs to reduce the risks associated with this source of earnings.”

These articles are for information purposes only and are not a personal recommendation or advice.


The daily market update is written by Russ Mould, AJ Bell’s Investment Director and his team. The article highlights the movement in the main index, winners and losers on the day and any macro-economic announcements.