Dunelm Group (LSE:DNLM) Q4 2026 Earnings Call

0:01 Hello and thank you for your interest in Dunelm and for engaging in our full year results for FY26. We have had a solid year of performance with 3.1% total sales growth coupled with slight margin expansion to 52.5% all in a year which continues to present challenges to the whole sector. Within the homewares and furniture 25 billion UK market, we yet again gained share to 7.9%. Our customer satisfaction increased for another year, this time up 2.4%. But I definitely want to highlight that this is already top quartile performance. But it was encouraging to see this measure improve year on year.

0:48 Through a number of efficiency and productivity initiatives, we also made strong inroads covering the on-cost of inflation, resulting in a flat year-on-year profit of £211 million. Free cash flow was up to £155 million from £127 million. However, this was primarily driven by some heightened investments in the previous year as a result of our freeholds and acquisitions. You will all be aware of our drive to be present where our customers are, and hence have been calling out the role of digital within our business for a number of years now. Supported by continued web enhancements, the launch and scaling of our app, and store-assisted digital selling, we are currently at 42% digital sales with consistent increases annually.

1:35 Finally, we are very proud to communicate our growing ordinary dividend per share at 45.5 pence, I hope you all know that our focus on our customers at Dunelm is a core part of what I and our team stand for. Internally, we refer to this as customer obsession and that's increasingly driving our decision making in our business and therefore it is important to see the overall year-on-year uptick in customer satisfaction. With renewed focus on service and in-store experience, supported by a revitalised store operating model, alongside the rollout of our self-service tills and a revamp of our in-store walkway, showcasing the very best of our offers or most relevant products.

2:23 We drove an increase of 3% in our store CSAT. As trails throughout the year, our growing click and collect offer came with an increased CSAT too. Whilst noting this has come from a lower base, enhancements such as the delivery of click and collect rooms at the front of store and pick by department functionality have facilitated ease and speed of pick and hence customer experience home delivery remains on our watch list as whilst our own two-person delivery associated with our furniture proposition did increase year on year by two percentage points our courier service enabled by third parties went back across the year We do have a number of operational and technology-led changes in our plan to support improvement in this space, however.

3:13 One of our key strengths and the reason our customers come back to us time and time again is because of our products. They are brilliant. And whether that's one of the 6,000 new owned brand products we brought to the market last year or from our full range repertoire. Whilst our heartland products continue to perform strongly, lighting in particular has gained more traction with our customers up 8 percentage points year on year we are also encouraged that following a Q2 availability challenge on furniture our availability has been strong throughout the second half our 12 campaigns and events continue to play an important role with customers outside of our two core sale events we've flagged with you in Q2 the impact of Black Friday and the associated considerations for us looking forward Relevance is key, and our focus on summer living paid dividends with our campaign matching the size and scale of our traditional winter warm performance, both of which were our top performing campaigns.

4:18 There is more to do in this space, however, as summer living hadn't historically been a key area of focus for us, and we know there was unmet demand. But while relevance is important, having a point of view on design as a specialist is also critical. And our collaboration with Yinka Laurie, from twinkle in the eye to product on shelves and online within 18 months, demonstrated not only that, but the pace and precision of execution. One of the rugs in the range sold out within a day of launch, and the pink and green dining chair within a week. In areas like this, planned scarcity will continue to be a key factor. I should note, that we are very proud of our availability metrics across our regular lines, which, supported by our strong forecasting and replenishment systems, continue to ensure we are on time and in full for our customers.

5:13 This year has also been important for its continued reach across channels. We are not satisfied with the number of store openings and have bigger ambitions on this front moving forward. But the quality and impact of the two new stores and one reopening we have had is excellent. With business leading transaction levels for Kingston and continued access to London infills with Wandsworth, we continue to gain confidence with the choices we are making on proposition, on flow and on format. We've also had some strong refrits ensuring we are rolling out the tried and tested latest blueprint and the high single digit increases in St Albans we are now seeing year on year validate those choices.

5:59 Finally, we continue to invest in stores that are not at the standard they should be. And later in the strategy update, we'll discuss this more. We are passionate about digital connectivity. Not only because this is how our customers want to shop, but moreover, because it's how our customers shop in the most effective way with us. Helping them name larger baskets with more frequent shops. Our app gives us 40% higher basket value than web-only customers, which is already ahead of store-only customers. And conversion through this channel is higher. This year, we've become more ambitious with our social channels, in particular TikTok and YouTube. However, whilst active, we firmly believe we can continue to grow these channels.

6:49 We have to acknowledge that sometimes we are followers. We are definitely not fast enough and weren't on the app. But as a business, when we move, we move. And we are delighted to have been one of the first launch partners with Google on conversational commerce in Europe through our AI-powered shopping assistant, which, if you're an iOS user, you can access now. The future's here. We do pride ourselves on service, but there is a big prize for efficient service. We are now 85% of the way through our self-checkout rollout, with two-thirds of our customers shopping in this way where it's an option. And as with all retailers, we have taken measures to combat shrink whilst improving colleagues' safety, and are confident that these are working for us.

7:38 It's nothing in isolation, but moreover, prompts, triggers, cameras, tech, and people, all in combination. And I did want to give a big shout out to our made-to-measure offer, which has historically been the perfect combination of product and service combined. At the end of this year, we layered in technology through Salesforce, which has enabled us to enhance better availability and will support M2M's double-digit growth moving forward. So, a lot going on this year. But I'll now hand over to Karen, who will share the review of our numbers. Thank you, Chloe. As usual, I will take you through our financial performance for the year ended 27th June 2026.

8:25 I'll give you a summary level overview and we'll then go into more detail. As Chloe said, we delivered a solid performance in FY26 with total sales up 3.1% to £1825 million. We delivered another strong gross margin performance with a gross margin of 52.5% up 10 basis points year on year net operating costs increased by just under 4% year on year profit before tax of £211 million was flat year on year pvt margin decreased slightly by 30 basis points but remained strong at 11.6% and diluted earnings per share of 76.8 pence was flat on the prior year We delivered another year of strong cash generation with £155 million of free cash flow, £27 million higher than the prior year.

9:26 Operating profit conversion to cash was up from 57% to 69%, supporting a £7 million reduction in year-end net debt to £95 million. At the end of the year, our net debt to EBITDA ratio was 0.3 times. which is within our targeted range of 0.2 to 0.6 times. The Board has declared a final dividend of 28.5p per share, taking the full year dividend to 45.5p per share, a progression of 2.2% on the prior year. And we also paid a special dividend of 25p per share earlier in the year. We delivered just over 3% total sales growth within a challenging macro backdrop.

10:17 Now we've taken a slightly different approach to illustrating how sales grew. As a truly omni-channel business, there is of course an overlap between store-enabled sales, which comprise sales from walk-ins, from in-store tablets and from click and collect, and digitally enabled sales which comprise sales from home delivery and also in-store tablet and click and collect sales. Store enabled like-for-like sales were up just under 1%. We further expanded the store estate opening two new stores during the year both in London, in Wandsworth and Kingston and we reopened our Yeovil store which had been closed following a fire. Digitally enabled sales grew by more than 9% and digital participation increased by a further 2 percentage points to 42%, leveraging the continued benefits of investment in our digital ecosystem.

11:16 The launch of the Dunelm app has strengthened our proposition. creating additional opportunities to deepen customer engagement and deliver a more connected shopping experience. We saw broad-based growth across categories, and heritage categories like textiles with established authority continued to underpin our sales growth. Made-to-measure window treatments again delivered strong growth, demonstrating the value of our specialist expertise and the benefits of targeted investment in high growth categories. And the net result was that we continued to outperform the total homewares and furniture market, increasing market share by 10 basis points year on year to 7.9%.

12:03 We delivered another strong gross margin performance, demonstrating the consistency of our model over time. This year, gross margin of 52.5% expanded by 10 basis points, benefiting from a foreign exchange tailwind partly offset by increased customer participation in promotional events through the course of the year. We delivered to the cost plan that we set out at our interim presentation and, per my summary, net operating costs of £734 million were up 3.9% year-on-year. Volume-driven costs, primarily variable logistics costs, and performance marketing expenses have grown in proportion to the growth in digital sales and added just under £20 million year-on-year to our cost base.

12:56 Inflationary pressures continued, driving more than £20 million of incremental cost. Wage inflation remained the most significant headwind, although it began to moderate in the final quarter of the year due to a relatively lower rate of national living wage increase. We also experienced cost pressure in our supply chain from higher fuel costs driven by geopolitical events and increases in warehouse rental costs. We invested an incremental £10 million during the year, primarily in our store estate. This was a combination of investment in new store renewals this year, a lower number than usual, partly offset by the annualised impact on cost of higher activity in the prior year.

13:43 productivity gains accelerated in the second half as we said they would delivering an incremental 15 million pounds over the full year savings were driven by operational improvement across the business particularly labour optimisation in stores which was supported by the further roll out of self-serve checkouts alongside efficiencies in carriage costs logistics and marketing other items contributed a year on year benefit of 10 million pounds These included a £3 million increase in net operating income related to insurance receipts in respect of two store fires, primarily compensating for the associated loss of trade. And given the challenging backdrop, performance related remuneration costs were also lower in the prior year.

14:34 And we saw a benefit from business rates of about £1 million, which will provide an annualised tailwind into next year. In summary, we used productivity gains and other cost reductions to help offset upward pressure from volume driven costs, ongoing inflationary pressures and continued investment for growth. Our net operating profit increased by £2.9 million year on year, but net financing costs were also up £2.9 million, driven by a higher lease interest charge, this year £10 million, prior year £7 million. Underlying interest costs remain broadly stable in line with net debt levels throughout the year. So profit before tax was £211 million flat year on year.

15:27 Profit after tax of £155 million was about £1 million lower than the prior year, reflecting an effective tax rate of 26.3% 40 basis points higher than the prior year. This was slightly higher than our historic average of around 50 to 100 basis points above the headline rate and was largely due to an adjustment in respect of non-qualifying depreciation. Basic earnings per share was 77 pence and diluted earnings per share was 76.8 pence flat year on year. cash generation increased in the year. Operating cash flow grew by 5.7% to £270 million, benefiting from a £9 million working capital inflow and higher operating profit. The working capital inflow was largely driven by lower inventory levels, partially offset by a corresponding reduction in stock-related payables.

16:30 Capital expenditure of £43 million was in line with guidance and lower than the prior year which included investment in freehold property purchases and two small acquisitions. During FY26 CAPEX primarily related to £27 million invested in our store estate and £13 million of tech related CAPEX including investment relating to the build and launch of our app. The store investment related to the costs of opening two new stores, including significant work on our new Kingston store, seven major refits and the continuation of our decarbonisation programme. Lease liability repayments were £8 million higher year on year, primarily reflecting the expansion of the lease portfolio and the renewal of lease agreements.

17:23 We generated £155 million of free cash flow, £27 million higher than the prior year, with operating profit conversion improving from 57% to 69%, supporting a £7 million reduction in year-end net debt to £95 million. Total dividend payments in the period were £141 million Just to note, the Group also periodically makes share repurchases to Holden Treasury to satisfy obligations under employee share schemes, and in the year repurchased £16 million of shares. The Board has declared a final dividend of 28.5p per share, taking the ordinary total dividend for FY26 to 45.5p per share, up 2.2% on the prior year, which is ahead of earnings, and a mark of the Board's confidence in the future prospects of the business.

18:22 This was in addition to a special dividend of 25p per share paid in April, taking total dividends declared to 70.5p per share. Our net debt to EBITDA ratio ended the year at 0.3 times, which is within our target range. So to summarise, We delivered a solid financial performance with growth in sales, market share and growth margin against a challenging macroeconomic backdrop. We mitigated the impact of inflation, invested in the business and held profits flat. Our free cash flow generation was strong, allowing for that investment and increased ordinary dividends and we paid a special dividend in the year.

19:08 Q1 trading has been mixed so far, with the start of the quarter significantly impacted by the extremely hot weather. However, more recently, with cooler weather and wetter weather, performance has normalised. I'll now hand back to Chloe to close this presentation. Thank you very much for now. Thanks a million, Karen. So, that brings FY26 to a close. But we are very excited today to be sharing in our strategy session our customer led plan to unlock the growth we know we can capture and is summarised by our ambition to win hearts and homes. We'll do this by becoming the homeware specialist with something for everyone.

19:54 Delivering seamless omnichannel experiences that customers love and transforming our capabilities to drive sustainable growth. And as we do this, we will make our business bigger, better and bolder going forward.