Dunelm's first-quarter update on 15 October showed sales recovering after a heatwave-affected start, with full-year profit guidance unchanged following a difficult September.

Dunelm (LSE:DNLM), the homewares chain, provided some reassurance in its first-quarter trading update on 15 October after a run of cautious commentary. Total sales rose 1.1% to £432.7m in the 13 weeks to 26 September, up from £428.1m a year earlier, with store-enabled like-for-like sales down 0.8%. Digital represented 41% of the total, one percentage point higher than a year earlier.

The shape of the quarter was the key point. Sales fell by about 3% in the first six weeks, when unusually warm weather discouraged customers from buying soft furnishings, and then rose by about 4% in the final seven weeks. Made to Measure achieved double-digit growth, and Cook and Dine performed well, particularly in the second half of the period. Gross Margin rose by 0.1 percentage point, helped by a favourable currency movement.

The statement drew a warm response in the market. Early dealings on the day took the shares up by 6.3% to 851.5p from a previous close of 801p, and one account reported a gain of about 9% to 873p later on, giving a Market Value of about £1.76bn.

About the company

Dunelm is the largest specialist homewares retailer in the United Kingdom, selling furniture, soft furnishings, bedding, curtains, kitchenware, lighting and decorative products. It operates a network of large out-of-town stores alongside a fast-growing online business, and customers can order online and collect in store, which the company describes as a store-enabled model. The range includes own-brand products designed by an in-house team, together with third-party brands, and it covers a broad range of price points aimed mainly at value-conscious households.

A major strength of the model is its control of the Supply chain. Much of the range is designed in-house and bought directly from manufacturers, which supports gross margins above 50%, as shown in the full-year figures. Made to Measure, which produces curtains and blinds to order, and services such as Cook and Dine, a kitchen and dining category, add variety and encourage repeat visits. Sales are also supported by its loyalty offering and by a long-running emphasis on value.

Profit reflects like-for-like sales, the mix between stores and digital, gross margin, and costs such as rent, wages, Marketing and delivery. The article reports sales of £1,825.5m, pre-tax profit of £211.0m, a falling level of net Debt and generous dividends, including a special payment. Strategy is organised around the Winning Hearts & Homes plan, which involves investing in stores, digital capability and the product range, and extending the customer base through a wider range of categories while keeping its financial position healthy.

Guidance intact after September

Chief executive Clo Moriarty said she was encouraged by the momentum built as the quarter progressed following the warm weather. Full-year adjusted pre-tax profit is expected to be broadly in line with the £211m achieved in the 2026 financial year, while first-half profit is expected to come in below the £114m recorded in the same period a year earlier, with benefits weighted to the second half.

That guidance followed preliminary results on 8 September, when Dunelm (LSE:DNLM) reported that trading had been significantly softer in the first six weeks of the new financial year because of the unusually hot weather. The share price response to the unchanged guidance in October suggested that the market had been braced for worse.

In the 52 weeks to 27 June 2026, sales grew 3.1% to £1,825.5m, pre-tax profit was flat at £211.0m and gross margin improved by 10 basis points to 52.5%. Digital represented 42% of sales, an increase of two percentage points. Net debt, excluding leases, fell to £94.6m from £102.0m.

What drives homewares demand

Homewares spending is closely tied to the housing market, household confidence and seasonal patterns. Customers often refresh bedrooms, living rooms and kitchens when moving home or when the weather turns, which is why an unusually warm start to the autumn can delay purchases of soft furnishings such as throws, cushions and curtains.

Competition comes from other specialist and general retailers, online marketplaces and supermarkets. Retailers that can offer attractive pricing and fast delivery, backed by an efficient supply chain, are better placed when budgets are tight.

What to watch next

The next update on 14 January will cover Christmas and the winter sale, a period that influences the second-half weighting the company has talked about. Investors will look at like-for-like sales, the digital share of the total and whether gross margin gains persist as currency movements change.

Pressure on household finances and the cost of living remain key variables, as do wage and freight costs. Progress with the store renewal and opening programme and the response to new categories will show how effectively management is executing its plan, and any change to full-year guidance will be noted as a reflection of trading across the busiest period of the year.

Dividends and strategy

Shareholders are due to receive a final Dividend of 28.5p on 17 November, taking the total ordinary dividend to 45.5p, up 2.2%. Together with a 25.0p Special Dividend paid in April, total dividends declared for the year amounted to 70.5p.

Ms Moriarty has introduced a self-funded plan called Winning Hearts & Homes, which she has described as aiming to create a bigger, better and bolder Dunelm (LSE:DNLM). Five store renewals have been completed, and two openings are expected during the first half.

Prior-year comparatives are somewhat tougher for the opening period than for the rest of the year, with total sales growth of 6.2% in the same quarter last year, followed by 1.6%, 2.1% and 2.9% in subsequent quarters. That pattern may help the second-half weighting that management is relying on.

The next update, covering the second quarter including the Christmas and winter sale periods, is due on 14 January. Consumer confidence and pressure on household budgets remain the main external variables for the retailer.