Dunelm launches cost-cutting growth plan, flags soft start to FY27

On Tuesday, Dunelm unveiled a three-year growth strategy while acknowledging that the onset of the new financial year was marred by unusually high temperatures, which dampened trading activity. The U.K. homewares retailer's plan consists of cutting approximately £100 million in expenses while simultaneously investing in strategies aimed at boosting sales.

Since the implementation of the new fiscal year, Dunelm has managed to reduce about 8% of salaried positions within its support and distribution teams. The previous year's financial report revealed total sales of £1.83 billion, marking a 3.1% increase compared to the prior year. Digital sales contributed to this growth, rising by 2 percentage points to reach 42%.

The company's gross margin improved by 10 basis points, now standing at 52.5%, and pretax profit stood at £211 million, which was in line with the previous year's figures. Dunelm's cash flow from operations increased to £155 million from £127 million, indicating a significant contribution of 69% to operating profit, up from 57% the year before.

Looking forward, Dunelm remains optimistic about its core strengths and growth prospects. However, the company has expressed concern over notably weaker trading during the first half of fiscal year 2027 due to the prolonged period of extreme heat. Despite this, strong online conversions and rising store footfall have bolstered confidence in the current business model.

Dunelm's three-year plan, dubbed "Winning Hearts & Homes," aims to restore sustainable mid-to-high single-digit sales growth, achieve an adjusted pretax margin of around 11%, and reach a return on capital employed of approximately 30%. The company also anticipates incurring non-recurring infrastructure spending of £30 million to £40 million over the next two years.

Furthermore, Dunelm plans to increase capital expenditure by roughly £125 million above its current rate over the next three years, encompassing store expansions and renovations.