Dunelm H1 FY26: steady sales, softer profit, and a confident new plan
Dunelm has posted a solid top line but a dip in profit for the 26 weeks to 27 December 2025. Sales grew 3.6% to £926.3m, while profit before tax (PBT) fell 7.5% to £114.0m as costs rose faster than sales and Q2 trading underwhelmed. The new CEO, Clo Moriarty, struck an upbeat tone, highlighting market share gains and “significant headroom” for growth.
Investors get both an increased interim ordinary dividend and another special dividend. Guidance is unchanged: full-year PBT is expected to be in line with consensus.
Key numbers at a glance
| Metric | H1 FY26 | H1 FY25 | Change |
|---|---|---|---|
| Total sales | £926.3m | £893.7m | +3.6% |
| Digital as % of sales | 41% | 39% | +2ppts |
| Gross margin | 53.4% | 52.8% | +60bps |
| Net operating costs:sales | 40.5% | 38.4% | +210bps |
| PBT | £114.0m | £123.2m | (7.5%) |
| Diluted EPS | 41.7p | 45.0p | (7.3%) |
| Free cash flow | £171.4m | £168.5m | +£2.9m |
| Net cash | £13.3m | £57.1m | (£43.8m) |
| Ordinary dividend | 17.0p | 16.5p | +3.0% |
| Special dividend | 25.0p | 35.0p | n/a |
Notes: bps = basis points; ppts = percentage points. Digital includes home delivery, Click & Collect, and tablet-based store sales.
Sales resilience vs profit pressure – what changed?
Growth was uneven. Q1 delivered +6.2% sales growth; Q2 slowed to +1.6% amidst a tougher December, more aggressive Black Friday discounting, and a cautious promotional stance from Dunelm. Importantly, the Group still outpaced the combined homewares and furniture market and nudged market share up 20bps to 7.9%.
Why the PBT decline? Costs rose 9.2%, outpacing sales. The drivers were volume-related logistics and performance marketing tied to digital growth (+£11m), wage and NI inflation (+£11m), investments in new stores, and some costs pulled forward into H1 (notably brand marketing). The PBT margin slipped to 12.3% from 13.8%.
Gross margin held firm – FX tailwinds doing some lifting
Gross margin improved 60bps to 53.4%, largely thanks to foreign exchange tailwinds. Dunelm kept retail prices broadly stable despite a competitive backdrop, particularly around Black Friday. Management expects FX benefits to continue into H2 and will keep flexibility on pricing and promotions to protect value and profitability.
Omnichannel mix improving – digital at 41%, app launch due in spring
Digital mix increased to 41% (from 39%), with Q2 at 42%. Stores continue to matter – around 70% of total sales are supported by stores when you include Click & Collect – but the journey is clearly omnichannel. The full launch of the app in spring is a potential H2 catalyst for engagement and conversion.
One soft spot was furniture. Certain lines suffered availability shortfalls due to mismatched forecasting and demand. Recovery plans are in place – worth watching given furniture had been a recent tailwind.
Cash generation strong, dividends flowing – but mind the timing benefit
Free cash flow came in at £171.4m, slightly ahead year on year, but includes a £93m timing benefit from a payment in transit at period end. Underlying free cash flow was £78.5m. Reported net cash was £13.3m; excluding that timing quirk, underlying net debt was £80m (0.3x annualised EBITDA), still comfortably within Dunelm’s target leverage range.
- Interim ordinary dividend: 17.0p per share.
- Special dividend: 25.0p per share.
- Both payable on 8 April 2026; ex-dividend date 12 March 2026; record date 13 March 2026.
There is also a small buyback planned (up to 1.7 million shares) to satisfy employee share schemes – no shares will be cancelled. Liquidity looks ample with a £250m revolving credit facility to September 2029; £33.0m was drawn at period end.
New CEO’s playbook: more share from a still-fragmented market
With only 7.9% share in UK homewares and furniture, Moriarty sees headroom. The strategic focus is to sharpen a broad, value-led proposition and deepen customer relationships. The six areas flagged:
- Universal appeal – clarify the brand to convert high awareness into higher consideration.
- Loyalty and wallet share – one third of customers drive two thirds of sales; Dunelm captures only around 15% of top customers’ homewares spend (management estimates) – scope to grow that.
- Outstanding choice – simplify ranges and lean into the master Dunelm brand where 70% of products are own-brand.
- Physical and digital reach – accelerate store footprint where there is white space and push digital journeys, including app and social commerce.
- Customer satisfaction – lift home delivery scores for small-item logistics to drive repeats and cut failure costs.
- People and platforms – invest in capabilities, data, and productivity to stay “future fit”.
It is evolution rather than revolution, but it reads commercially grounded: tidy the range, fix availability, get the app out, and target measurable CSAT gains by channel.
Outlook: guidance steady, Q3 start better, costs to moderate
After a softer Q2, early Q3 sales growth is “more in line with H1” overall, helped by a good Winter Sale and encouraging response to new spring ranges. Management expects FY26 PBT to be in line with current consensus of £214m (range £210m-£221m). Cost inflation is expected to moderate in H2, helped by a lower National Living Wage increase from April 2026 and phasing benefits.
Store openings this year will be fewer than previously guided (two planned H2 openings now likely to slide into early FY27). Capex for FY26 is now expected to be around £40m.
My take: quality holding up, execution matters from here
On balance, this update is mixed-to-positive. Sales resilience, higher gross margin, and strong cash generation are solid foundations. The profit dip is not ideal, but the drivers – timing, promotional discipline, and digital-related cost growth – are understandable and, crucially, many should ease in H2.
- Positives:
- Market share up to 7.9% and digital participation at 41%.
- Gross margin strength with FX tailwinds into H2.
- Clear, measured strategy under a new CEO, with practical levers (range, app, CSAT, availability).
- Cash returns intact – 17.0p interim and 25.0p special dividend.
- Watch-outs:
- Elevated cost base – needs H2 productivity to land as planned.
- Furniture availability must recover to restore momentum.
- Highly competitive peak trading and promotional environment.
- Underlying net debt of £80m once timing is normalised.
What to watch next
- App launch in spring – conversion and engagement impact.
- Q3 trading update on 16 April 2026 – confirmation that momentum has normalised post Q2.
- Gross margin continuity from FX tailwinds vs any change in promotions.
- Delivery CSAT and small-item logistics improvements.
- Furniture availability recovery and store pipeline detail for FY27.
Dunelm remains a high-quality operator in a fragmented market. The near-term story hinges on executing the H2 plan – app, availability fixes, and cost moderation – while keeping that enviable gross margin intact. If they deliver, the combination of steady growth, robust cash generation, and ongoing distributions should keep the long-term thesis intact.
