Dunelm Stock Tumbles, Expects Full-Year Profit at the Lower End of Expectations

Dunelm Group (LON: DNLM) shares tumbled more than 14% on Thursday after the company released its second-quarter and first-half trading update, revealing a solid performance amidst a difficult macroeconomic environment.

While sales growth continued, the retailer anticipates profit before tax (PBT) for the full year to land at the lower end of market expectations.

Total sales for the first half of fiscal year 2026 reached £926 million, a 3.6% increase year-over-year. Second-quarter sales grew by a more modest 1.6% to £498 million. Digital sales participation climbed to 42% of total sales in Q2, a 2 percentage point increase.

Gross margin improved by 60 basis points year-on-year for the first half, primarily attributed to favorable foreign exchange rates. However, the company now projects first-half PBT to be approximately £112 million to £114 million.

The company noted that Q2 trading was more challenging, particularly around Black Friday and continuing into December. This highlighted the ongoing difficult economic climate. Dunelm also pointed to heightened competitive activity in digital marketing and discounting.

Growth during the quarter was primarily driven by core categories such as bedding, towels, and lighting. Made-to-Measure products also experienced strong growth. Conversely, furniture sales were softer due to availability issues, for which recovery plans are in place. A Winter Sale has since shown promising results, with overall growth exceeding that of Q2.

Dunelm continues to refine its customer proposition. The company opened its second inner London store in Wandsworth during Q2 and reopened its Yeovil store after a fire. Plans are underway to open up to two more Superstores in the second half. The new Dunelm App has also launched on both Apple and Android platforms, with a full customer launch scheduled for February.

Given the first-half performance, Dunelm now expects full-year PBT to be at the lower end of consensus expectations. The company compiled consensus average of analysts' expectations for FY26 PBT is £222m, with a range of £214m to £227m.

CEO Clo Moriarty commented: “We delivered a solid first half, and I'm really proud of all our colleagues for their efforts over this busy period.” She added: “Whilst the UK retail environment remains variable, we have acted on some clear lessons from the first half, including targeted steps to improve availability, ensuring customers can access our fantastic ranges seamlessly, however they are shopping with us.”