Top UK Stocks: Dunelm shares rise as sales continue to grow

Dunelm shows why it remains one of the strongest names in retail, Hays benefits from the tight labour market, National Express says it is shielded from rising fuel costs, Rank Group’s venues continue to bounce back, and appetite remains high for Domino’s Pizza.

Dunelm profits to grow despite supply chain pressure

Dunelm said it has continued to grow sales as its online offering strengthens and customers responded well to its postponed Summer Sale, adding it is mitigating the supply chain problems and remains on course to grow profits once again this year.

Total sales in the first quarter to September 25 totalled £388.8 million. That was up 8.3% from last year when Dunelm benefited from a boom in demand for homewares during lockdown, and an impressive 48% above 2019 levels, before the pandemic hit.

This strong performance was mainly driven by the positive customer response to our  Summer Sale  in July (which was postponed from the fourth quarter of FY21), improved product availability and some popular new ranges in our furniture categories,’ said Dunelm.

Dunelm shares were up 1.9% this morning.

The sale did knock Dunelm’s gross margin by 10 basis points compared to last year, although it said this was partly countered by a higher mix of full price sales outside of the sale event and cost savings from better sourcing. Dunelm said its gross margin in the first half should be broadly flat from last year and down 50 to 75 basis points over the full year, with Dunelm to hold both a Summer and Winter sale in the second half.

Digital sales continued to grow and accounted for 33% of all sales in the quarter, up from 30% a year ago and just 19% back in 2019.

‘Given the strength of the comparative Q1 FY21 period, which benefited from some pent-up demand following store closures during the first national lockdown, we are pleased to have grown sales across the total retail system during the quarter, with digital sales growing at 20%. This strong performance demonstrates the strength of our integrated offer, providing customers with an attractive digital proposition, combined with local, friendly and convenient in-store shopping experiences,’ the company said.

Dunelm addressed concerns over the widely-reported problems hitting supply chains and said, whilst it is not immune, it feels it is ‘well placed relatively to manage them’ thanks to healthy inventory levels and a greater willingness among customers to substitute homeware products when others are unavailable.

‘Sales growth in the first quarter of the new financial year has been encouraging and we have seen continued outperformance versus the homewares market. In the absence of any significant change in consumer demand driven by further Covid-related lockdowns or other industry shortages, the board expects that FY22 full year profit before tax will be in line with analysts' recently increased consensus expectations,’ Dunelm said.

Analysts currently expect Dunelm to report annual pretax profit this year of between £167 million to £190 million, with a mid-range of £179 million. That compares to the £157.8 million delivered in the last financial year.

 

Where next for Dunelm shares?

The Dunelm share price is extending its rebound off 1230p the two month low struck earlier in the week.  

The MACD is showing a receding bearish bias, keeping buyers optimistic. However, the move higher will need to retake the 50 sma at 1360p in order to negate the near term down trend and expose the 100 sma at 1385p. Beyond there, resistance can be seen at 1470p the July 14 high and 1500p the September high. 

Failure to retake the 50 sma could send the price reaffirm a move lower towards 1260p a level which capped losses in September and July. A breakthrough here could open the door to 1230p the recent low. 

Where next for Dunelm shares

 

Hays fees return to pre-pandemic levels amid boom in recruitment

Hays said net fees were in-line with pre-pandemic levels in the latest quarter as it reported strong growth amid a tight global labour market.

Hays shares were up 3.5% in early trade this morning at 167.6p.

Net fees were up 36% year-on-year in the three months to the end of September and grew 41% on a like-for-like basis. Hays said fees in the quarter were in line with what was delivered two years ago in 2019, before the recruitment industry was heavily disrupted by the pandemic.

The recruitment giant delivered strong growth across all geographies, with Australia & New Zealand reporting 34% LfL growth, Germany up 39%, the UK & Ireland 45% and the rest of the world up 45%.

LfL growth in fees from placing permanent workers was up 65% compared to a more tepid 26% rise in LfL net fees from temporary workers.

‘We have made a strong start to our financial year, with sequential fee growth in all major markets. 12 countries produced record net fees, including the USA and China, and our global Hays Technology business also hit record fees,’ said CEO Alistair Cox.

Hays said its consulting business also delivered record levels of productivity in the period despite having recently hired more staff, with its headcount growing 8% in the quarter and now standing 19% larger than this time last year.

‘Consultant productivity remains at record levels, despite our significant headcount investment. Our strategic growth Initiatives are performing well as we accelerate the pursuit of the many structural growth opportunities we see. Client and candidate confidence is high and there are clear signs of skill shortages and wage inflation, particularly at higher salary levels,’ said Cox.

Hays reiterated its plans to start paying ordinary and special dividends in November 2021 as profitability improves thanks to the recovery in the labour market as the global economy bounces back from the pandemic. The firm has said it plans to pay just one dividend for the current financial year worth 1.22p per share and one special payout worth 8.93p per share.

 

National Express well shielded from fuel and labour cost rises

National Express said it remains on course to meet expectations this year as demand for buses and coaches continues to recover after being hit hard during the pandemic, adding it is well placed to avoid being caught out by the surge in fuel costs and the shortage of drivers plaguing the industry.

The company said revenue in the third quarter to the end of September equalled 83% of pre-pandemic levels seen in 2019 at constant currency, improving from 76% in the second quarter.

The firm said it remains on course to deliver underlying pretax profit in line with expectations over the full year.

Meanwhile, National Express said it is partly shielded from some of the major problems hitting industries around the world at present. It said it should be protected from the surge in energy prices in recent weeks considering its fuel is fully hedged through 2022 and into 2023. Plus, it said it is continuing to ‘successfully mitigate the financial impact of ongoing driver shortages’ and noted that it has cemented wage deals across the business.

That bodes well in the current climate considering fuel and payroll account for 70% of the company’s cost base.

‘I am pleased to say that our ongoing focus on cost management along with our long-established procurement and fuel hedging programmes mean that we have seen no material impact from input cost inflation,’ said CEO Ignacio Garat.

National Express said it expects to end the year with around £800 million in cash and undrawn debt facilities, providing enough liquidity to cover the firm as cashflow recovers. National Express reiterated its hopes that it will generate positive free cashflow this year thanks to a recovery in the business and lower capital expenditure spending.

The company also reiterated its hopes of striking a merger with peer Stagecoach after both companies announced they have been in discussions about a potential deal. National Express said it thinks a combination could ‘deliver significant growth and cost synergies, as well as strong value creation for both sets of shareholders’ – but warned there is no certainty a deal will be completed.

National Express shares were up 1.6% in early trade this morning at 233.6p, while Stagecoach was up 0.8% at 80.9p.

‘We continue to focus on profitable growth with a strong pipeline of opportunities across the group and recent contract wins in Spain and the UK. We have completed our business review and I look forward to communicating the exciting path ahead for the group at our forthcoming Capital Markets Day,’ said Garat.

National Express will hold its Capital Markets Day on Monday.

 

Rank Group venues continue to bounce back

Gambling outfit Rank Group said sales at its casinos and bingo halls have started to bounce back after suffering during lockdown last year, but said they remain below pre-pandemic levels.

The company said overall sales were up 69% year-on-year in the first quarter of its financial year to £163.1 million.

Rank Group shares were up 1.4% in early trade this morning at 162.3p.

The largest improvement came from its Grosvenor casinos, with sales rising 209% year-on-year to £79.2 million. Still, sales remain one-fifth lower than before the pandemic hit. Rank Group said sites outside London are performing better than those in the capital, which is still feeling the impact from reduced levels of tourism.

Sales at its Mecca bingo halls grew 41% from last year to £34.0 million but remained 22% below pre-pandemic levels. It said overall visitor numbers have continued to improve as time goes on, but warned its older and more frequent customers are returning at a slower rate.

Meanwhile, its Enracha venues in Spain reported 20% growth to £6.5 million but remained 21% below 2019 levels as ongoing restrictions in the country continues to weigh on its performance.

Rank Group’s digital operations continued to strengthen. UK digital sales grew 4% to £38.2 million from last year, which presented some tough comparatives when people shifted online during lockdown. Its international digital sales were up 11% to £5.2 million.

Rank Group said it has raised its capital expenditure budget for the year to £50 million from £40 million.

‘Based on our current trading performance, an expectation of continued improving performance across all businesses and assuming venues remain fully open, management expects Group LfL net gaming revenue for the year ended 30 June 2022 to be in the range £700 to £750 million and Ebit to be between £50m and £75 million,’ said Rank Group.

 

Domino’s confident it can keep growing amid challenges

There seems to be no stopping the country’s appetite for Domino’s Pizza as the company continues to deliver strong growth, but warned the return of more normal VAT rates could weigh on growth in the second half of its financial year.

System sales rose 9.9% in the 13 weeks to September 26, marking the third quarter, to £375.8 million from £342.1 million the year before. Like-for-like sales growth remained healthy at 8.8% in the quarter, although that marks a significant slowdown from the 17.5% growth booked last year when lockdown encouraged more people to splash out on treating themselves at home.

The company said growth was driven by the recovery in collection rates, which were up over 40% year-on-year and now at 82% of pre-pandemic levels after being disrupted during lockdown.

Digital sales also continued to perform well after the firm launched its new mobile app, which now accounts for over 42% of all orders.

For the first half, sales were up 16.2% to £1.13 billion and like-for-like sales were up 15.6%. Notably, Domino’s warned system sales growth will be impacted in the second half due to changes in the rate of VAT, which was temporarily reduced to help businesses during the height of the pandemic.

‘Trading remains in-line with our expectations, we are well placed as we gear up for our peak trading period and believe our strategy is working to create sustainable value for all our stakeholders,’ said CEO Dominic Paul.

‘Our supply chain continues to deliver outstanding results, despite the well-publicised inflationary pressures and challenging labour market, which is testament to the skill and dedication of our teams. While we see these pressures continuing into 2022, our success in managing them to date provides us with confidence that our growth momentum will be sustained. We're proud to be creating new jobs to support that growth and today are announcing that we are recruiting 8,000 new colleagues across the UK and Ireland,’ he added.

Domino’s shares were up 0.5% in early trade this morning at 387.3p.

 

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