UK's Dunelm Sees Annual Profit at Lower End of Market View on Weak Consumer Spending

UK's Dunelm warns profit could slip as consumers tighten spending on homeware

Dunelm Faces Profit Pressure Amid Shifting Consumer Spending

By Prerna Bedi

April 16 (Reuters) - British retailer Dunelm warned annual profit could fall after third-quarter sales growth slowed, with customers tightening spending on home furnishings amid uncertainty linked to the Middle East conflict.

Consumer Sentiment and Economic Outlook

Shoppers in Britain delayed major purchases in March and have become more cautious about spending on their homes as the U.S.-Israeli war against Iran weighed on sentiment and clouded the country's economic outlook.

Sales Performance and Market Reaction

Sales for the three months ended March 28 were up 2.1% at 472 million pounds ($640.98 million), a slowdown from the 6.3% rise in the same period year ago, as consumer spending softened in March, Dunelm said.

The retailer's shares were down nearly 6% in early trade, taking losses so far this year to more than 27%.

Profit Forecast and Company Strategy

Dunelm, which operates 203 stores across Britain and Ireland, expects annual profit before tax at the lower end of market expectations of between 210 million pounds and 217 million pounds. It made 211 million pounds in profit the year earlier.

This is the second time this year that Dunelm has warned of profits coming in at the lower end of market expectations.

"Although the external environment is not helpful in the short term, we continue to focus on the areas within our control — strengthening our proposition while operating efficiently and effectively," CEO Clo Moriarty said in a statement. 

Challenges for UK Consumers and Retailers

Cost Controls and Discounting Trends

NEGATIVE FOR THE UK CONSUMER

Under its new chief Moriarty, Dunelm has tightened its marketing budget and reigned in costs as it focusses on driving sales through new product launches and store expansions.

However, the company said that cash-strapped consumers continued to shun full-priced products as sales in the quarter were largely driven by its discounted ranges.  

Analyst Perspectives and Industry Comparison

"Indeed the slowdown in sales and higher participation into discounting reads more negatively for the consumer than recent comments from Next for example," J.P.Morgan analyst said in a note.

Next, one of Britain's largest retailers, late last month said it had not seen any noticeable drop off in UK sales since the Iran war began. 

Additional Information

($1 = 0.7364 pounds)

(Reporting by Prerna Bedi in Bengaluru; Writing by Yadarisa Shabong; Editing by Nivedita Bhattacharjee, Sherry Jacob-Phillips and Janane Venkatraman)