Investing.com -- Shares of Dunelm (LON:DNLM) fell over 3% on Thursday following its second-quarter trading update, which reported slower sales growth amid a challenging retail environment.
The British home furnishings retailer reported a 1.6% increase in Q2 sales, a slowdown from the 3.5% growth recorded in Q1.
For the first half of its fiscal year, Dunelm's gross margin rose by 10 basis points, reflecting what the company described as strong operational management.
Despite the softer quarterly performance, Dunelm maintained that its full-year profit before tax will fall within the range of market expectations, estimated at £207 million to £217 million.
Analysts at Jefferies, who project profit before tax to land at £214 million, noted that while this assurance is reassuring, it leaves room for marginal downside relative to consensus forecasts.
The company also reiterated its expectation of achieving gross margins at the upper end of its previously guided range of 51-52% for FY25, despite ongoing pressures from rising costs, including the National Living Wage and National Insurance Contributions.
While the homewares sector remains under pressure, analysts at RBC Capital Markets see early signs of recovery in higher-ticket and discretionary categories, supported by improvements in consumer confidence.
RBC also noted that Dunelm appears to be gaining market share, due to its value-focused proposition and broad product range.
Despite persistent cost headwinds, including wage inflation, the analysts believe that investments in digital and automation initiatives should help the company offset some of these pressures.
RBC said that Dunelm remains a strongly cash-generative business with a robust balance sheet, suggesting the potential for additional cash returns to shareholders in the near term.
“As a market leader, looking ahead we believe that this environment, though challenging, creates more opportunities for us to continue to raise the bar on our customer proposition and reach our next market share milestone of 10% in the medium term,” said Dunelm in a statement.