Prelim Results 2024 (Press release)

11 September 2024 Dunelm Group plc

Preliminary Results for the 52 weeks ended 29 June 2024

Strong performance and a clear pathway to further market share gains

Dunelm Group plc ("Dunelm" or "the Group"), the UK's leading homewares retailer, today announces its preliminary results for the 52 weeks to 29 June 2024.

Highlights

• Sales of £1.71bn (FY23: £1.64bn), up 4.1% on FY23 despite the softer market
• Customers responded well to our relevance, value and choice with sales growth driven by volumes (+6.2%)
• Further 60bps market share gain in combined homewares and furniture markets, now at 7.7%4
• Increase in active customers of 5.1%5, with growth across all age, income and geographic cohorts
• Growth delivered across both stores and online, with digital sales now comprising 37% of total sales (FY23: 36%)
• Six new stores opened (including one relocation) in line with our plans, giving us confidence to extend store rollout plan across different sizes and formats
• Further progress in our Good and Circular approach to sustainability6, with improvements in Scope 1 carbon intensity reduction, expansion of our community initiatives such as 'Delivering Joy' and greater diversity amongst our leaders

Financial highlights

• Strong gross margin of 51.8% (FY23: 50.1%), benefiting from net freight tailwinds and operational grip
• Profit before tax ("PBT") growth ahead of sales, up 6.6% to £205m (FY23: £193m)
• Diluted earnings per share of 74.4p (FY23: 75.0p), with increased PBT offset by 520bps higher effective tax rate, given changes to the statutory rate
• £132m free cash flow (FY23: £160m)2, year-on-year impacted by higher tax rate, working capital outflow and increased capex
• Final ordinary dividend of 27.5p per share (FY23: 27.0p) taking the full year ordinary dividend to 43.5p per
  share (FY23: 42.0p), an increase of 3.6%
• £158m total dividends paid to shareholders during the year, including special dividend of 35p per share declared with the interim results and paid in April

Outlook

• We continue to see a challenging consumer environment and the timing of a sector recovery remains uncertain
• Sales growth in FY25 expected to be driven by volume and further market share gains
• Strong plans underpin confidence in FY25 progress with ongoing investment in both growth and productivity drivers, whilst maintaining operational grip
• Evolved focus areas framing our strategic plans: elevating our product offer; connecting to more customers; and harnessing our operational capabilities
• Confident in our plans to reach next milestone of 10% market share in the medium term
• Well-placedto unlock our full potential as The Home of Homes

Nick Wilkinson, Chief Executive Officer, commented:

"This strong set of results is testament to the hard work of our adaptable and committed colleagues. In a period when consumers faced inflationary pressures and competing demands for their disposable income, we have continued to raise the bar on the relevance and value we offer at Dunelm. The continued delivery of volume- driven sales growth and further share gains in this softer market underlines this, and the strength and resilience of our business model.

"We have made good progress with our growth plans, including the expansion of our store estate, building a faster and better digital experience for customers, and advancing our tech and data capabilities. As we evolve our strategic thinking in this changing environment, we are now even clearer on the areas which will help us to unlock our full potential as The Home of Homes.

"Whilst we are gradually seeing improvements to economic indicators, we are yet to see a meaningful change in consumer spending habits in our markets. Against this backdrop, and compared to a strong first quarter last year, we have made a solid start to FY25. Our plans give us a clear pathway to reaching our next milestone of 10% market

share in the medium term, and we remain very confident in our ability to deliver long-term sustainable growth as a result."

1. Digital includes home delivery, Click & Collect and tablet-based sales in store.
2. Free cash flow is defined as net cash generated from operating activities less capex (net of disposals) and business combinations, net interest paid (including leases) and loan transaction costs, and repayment of principal element of lease liabilities. A reconciliation of operating profit to free cash flow is included in the CFO review.
3. Excluding lease liabilities. Full definition provided in the table of alternative performance measures.
4. GlobalData UK combined homewares and furniture markets, excluding kitchen cabinetry and bathroom furniture. Market share for the period July 2023 to June 2024 was 7.7%. Prior year comparative restated.
5. Growth in unique active customers who have transacted at least once in the 12 months to June 2024. Management estimates using Barclays data.
6. Described in more detail on our corporate website athttps://corporate.dunelm.com/sustainability.

Analyst Presentation:

There will be an in-person presentation for analysts and institutional investors this morning at 9.30am, hosted at Peel Hunt LLP, 100 Liverpool Street, London, EC2M 2AT, as well as a webcast and conference call with a facility for Q&A. For details, please contact hugo.harris@mhpgroup.com. A copy of the presentation will be made available at https://corporate.dunelm.com.

Quarterly analysis:

Notes to Editors:

Dunelm is the UK's market leader in homewares with a purpose 'to help create the joy of truly feeling at home, now and for generations to come'. Its specialist customer proposition offers value, quality, choice and style across an extensive range of c.85,000 products, spanning multiple homewares and furniture categories and including services such as Made to Measure window treatments.

The business was founded in 1979 by the Adderley family, beginning as a curtains stall on Leicester market before expanding its store footprint. The business has grown to 184 stores across the UK and has developed a successful online offer through dunelm.com which includes home delivery and Click & Collect options. 155 stores include Pausa coffee shops, where customers can enjoy a range of hot and cold food and drinks.

From its textiles heritage in areas such as bedding, curtains, cushions, quilts and pillows, Dunelm has built a comprehensive offer as The Home of Homes including furniture, kitchenware, dining, lighting, outdoor, decoration and DIY. The business predominantly sells specialist own-brand products sourced from long-term, committed suppliers.

Dunelm is headquartered in Leicester and employs c.11,500 colleagues. It has been listed on the London Stock Exchange since October 2006 (DNLM.L) and the business has returned c.£1.5bn in distributions to shareholders since IPO7.

7 Ordinary dividends plus special distributions.

CHIEF EXECUTIVE OFFICER'S REVIEW

Introduction

I am pleased to report another strong performance, in what remained a tough consumer environment. The homewares and furniture market was still soft and during the year we faced both inflationary pressures and disruption to major shipping routes. Nevertheless, we have again demonstrated the resilience of our business model in achieving growth, stable operating margins and strong cash returns. At the same time, we continue to invest for the long-term as we identify growth and productivity opportunities for the future.

As we assess the changing consumer landscape, we are evolving our focus areas to frame our strategic priorities and investment choices. Entering this next phase of growth, we are committed to our vision to become the UK's most trusted and valuable homewares and furniture brand, and will achieve this by unlocking our full potential as The Home of Homes.

With a focus on further elevating our product offer, developing and expanding our stores and digital channels to connect with more customers and harnessing our operational capabilities, we are confident in continued market share gains. Indeed, our plans now give us a clear pathway to 10% market share in the medium term.

As ever, our strong performance and excitement for the future is due to the support, adaptability and skills of our committed colleagues and supplier partners. I would like to thank them all for everything they continue to do to grow, adapt and develop. It is due to them that we achieve these results and are well-placed to unlock our full potential.

FY24 Review

A strong performance balancing growth and grip

In FY24 we successfully balanced delivering growth with maintaining our firm operational grip on the business amidst a challenging consumer environment. We made good progress against our objectives, expanding our store estate in different sizes and locations as planned, continuing to improve our digital proposition, and enhancing our multi-channel experience for customers who prefer to shop both online and in store, including through a better Click & Collect proposition.

We grew our sales by 4.1%, in a market which declined, reflecting our ongoing customer appeal and continuing our consistent track record of market share gains. We now have a 7.7%8 share of a total addressable market (combining homewares and furniture) valued at c.£24bn8, up 60bps year-on-year and significantly higher than the 5% we held in FY19, and see significant scope to increase this further.

We were particularly pleased with the quality of our sales growth, with volumes up 6.2% being a positive indicator of our overall appeal. With volume growth ahead of sales, we saw a small reduction in our average item value, reflecting a slightly different product mix to the prior year, with the impact of price changes broadly stable. The strong volume growth was supported by an increase in the number of active customers, up 5.1%9. Pleasingly, this growth was seen across all age, income and geographical cohorts.

Gross margin was strong in FY24, expanding by 170bps to 51.8% (FY23: 50.1%), ahead of our expectations at the start of the year. There were various moving parts within our input costs, and we particularly benefited from a net

tailwind from lower freight rates which has now largely annualised. We were also able to avoid any significant impact from the disruption in the Red Sea, working closely with our freight providers to manage the impact of surcharges, whilst using the capabilities within our commercial teams to minimise availability issues. Our strong margin was achieved without price increases, as we maintained our commitment to offering outstanding value to our customers. As expected, operating costs as a proportion of sales increased to 39.3%, driven by inflation and the investments we are making to drive future growth. Cost increases were partly offset by productivity improvements across the Group. Overall, PBT grew ahead of sales, up 6.6% to £205m (FY23: £193m), representing a strong PBT margin of 12.0% (FY23: 11.8%). Diluted EPS fell by 0.8% to 74.4p (FY23: 75.0p), with our pre-tax profit growth offset by a higher effective tax rate, largely the result of increased corporation tax.

Our financial strength, including a healthy balance sheet and a capital-light growth model, is one of our core business advantages. This was reflected in another good year of cash generation, with free cash flow of £132m (FY23: £160m) representing 62% of operating profit. This enabled us to increase our ordinary dividend once again, and we are proposing a final dividend of 27.5p per share, bringing the full year ordinary dividend to 43.5p per share, up 3.6% year-on-year. In total, we returned £158m to shareholders during the year, including a special dividend of 35p announced at the interim results. This reflects our confidence in the business and ongoing commitment to our capital allocation policy and wider principle of delivering strong cash returns for our shareholders. Since our IPO in 2006, we have now returned c£1.5bn10 to shareholders.

1. GlobalData UK combined homewares and furniture markets, excluding kitchen cabinetry and bathroom furniture, including VAT. Prior year comparative restated.
2. Growth in unique active customers who have transacted at least once in the 12 months to June 2024. Management estimates using Barclays data.
3. Ordinary dividends plus special distributions.

Delivering for all our stakeholders

As well as a strong financial performance, we have delivered positive outcomes across our broad group of key stakeholders. We strive to make good decisions and ensure what we do is increasingly sustainable. During the year we reiterated our good and circular approach to sustainable growth, and continue to ensure it is embedded into our strategy and ways of working so that we are delivering for all of our stakeholders and focussing on our planet, communities and people.

In FY24 we were proud to become the first homewares specialist to have validated SBTi targets across Scope 1,2 and 3 carbon emissions11, which sees us align to the latest climate science from the Intergovernmental Panel on Climate Change (IPCC). We have also made further progress in extending our good and circular approach into our customer proposition, increasing the proportion of own-brand products which have our more sustainable 'Conscious Choice' label, and introducing the 'Too Good to Go' initiative to our Pausa cafes to help reduce food waste.

Our committed supplier partners are also helping us to limit our impact on the planet. Having grown together over several decades, we see these enduring relationships as a key strength of our unique operating model. On sustainability matters, we work together with our suppliers and continue to learn. Where necessary, we have been encouraging suppliers to adopt a data monitoring standard and action planning tool (the Higg Index) to underpin their improved manufacturing programmes.

We continue to place importance on and build momentum in the work our stores and sites do in their local communities. Originating during the pandemic and expanding since, all our stores now support important local organisations including selected schools, care homes, women's refuges and more. Our annual Delivering Joy

campaign is an example of this work in practice. Last year, I am immensely proud to say that we delivered 125,000 gifts to these local causes. Communities also form the backbone of some of our circularity initiatives, including our expanding takeback schemes and 'Home to Home', through which customers can donate pre-loved homewares items to those in need.

We place great importance on the development and engagement of our committed colleagues. Developing our talent improves retention, enables internal succession, and increases our productivity and business resilience. Encouragingly, we saw colleague retention increase to 89%12 during the year (FY23: 87%). Whilst our colleague engagement score fell in FY2413, although high by industry standards, we are actively listening to our colleagues. We see very strong response rates to our colleague engagement surveys throughout the year, which give us detailed and extensive feedback, from which we are building positive action plans across the business.

As technology changes the nature of all roles across our business, we are as committed to lifetime learning as we are to early careers recruitment and development. Our data academy and apprenticeships are good examples of this. We are also excited about our 'Reach' development programme which launched during the year and is focused on increasing the number of ethnically diverse colleagues in senior positions. We have much more to do in this area but are encouraged that the proportion of our 'role model' leaders14 from ethnically diverse backgrounds increased to 5.8% in FY24 (FY23: 3.8%).

1. Our targets approved by the SBTi are as follows. Overall Net-Zero Target: Dunelm Group PLC commits to reach net-zero greenhouse gas emissions across the value chain by FY40 from a FY19 base year. Near-Term Targets: Dunelm Group PLC commits to reduce absolute Scopes

1. and 2 GHG emissions by 50% by FY30 from a FY19 base year. Dunelm Group PLC also commits to reduce absolute Scope 3 GHG emissions by 50% within the same timeframe. Long-Term Targets: Dunelm commits to reduce absolute Scope 1, 2 and 3 GHG emissions by 90% by FY40 from a FY19 base year.

1. Retention is the percentage of colleagues from the start of the financial year (July 2023) who remained employed until the end of the financial year (June 2024), excluding any planned leavers.
2. Colleague engagement score (eNPS) is based on responses to the question 'How likely are you to recommend Dunelm as a place to work' from our May colleague survey. Our eNPS score fell 10%pts year-on-year.
3. Regional and store coaches plus all colleagues at 'Head of' level and above, of which we currently have around 300 across the organisation.

Unlocking our full potential as The Home of Homes

Looking forward, we have three broad focus areas which frame our priorities and investments. These are an evolution of the strategy we have followed over many years, and in combination will allow us to achieve our full potential as the Home of Homes, and to be the UK's most trusted and valuable brand for homewares and furniture.

Firstly, in the area of product: we see opportunity to redouble our focus on product development, increasing our curated ranges, bolder design differentiation, enhancing cross-category coordination in our collections and innovation in sustainable materials. In recent times we have been acutely aware of the importance in having the right product offer, at the right time, to ensure we remain relevant and appealing to customers. In the year we saw this demonstrated with stronger upholstered furniture collections, combined with 5-day delivery lead-times.

Secondly, we are building further confidence in opening more stores and developing our digital channels to deliver an outstanding and connected multi-channel shopping experience for our customers. We know that multi-channel shopping is the preference for most when it comes to homewares and furniture, so joining up our channels as much as possible is a priority.

Thirdly, after building up our skills and operational capabilities in recent years, we see significant opportunity to harness them to achieve both productivity improvements and further strengthen our customer offer. In light of elevated wage inflation, and with growing technology and data capabilities, where foundational investment has been made over recent years, there are increasing opportunities to introduce more automation and productivity tools throughout the business. These are already driving efficiencies in parts of our operations (such as reducing volumes in the Customer Contact Centre) and our capacity to successfully implement more of these initiatives will increase going forward.

Our three focus areas are therefore as follows:

1. Elevate our product offer
2. Connect with more customers
3. Harness our operational capabilities

These focus areas are an evolution of the strategy that we have followed over many years and, in combination, will allow us to unlock our full potential as The Home of Homes. They support broad-based and long-term sustainable market share growth which can be delivered alongside stable operating margins and strong cash generation. In the medium term they shape our clear pathway to reaching our next milestone of 10% market share.

There are various examples which bring to life the initiatives which sit under each of our focus areas:

1. Elevate our product offer

Product has always been at the heart of Dunelm, and we have well-established capabilities across a broad range of categories, particularly in textiles and soft furnishings where our specialism dates back 45 years. The scope for product elevation is very exciting, not just through broadening our ranges, but also by increasing relevance with more coordination and style. We are taking our existing product strengths and elevating them further through design and innovation across all price and quality tiers.

Lighting is a good example of the level of further opportunity we see ahead. We have consistently grown market share in the last five years and see headroom for more growth and innovation. Our in-house design capability allows us to coordinate across the wider Dunelm range, including our core textiles collections and cross-category labels such as Elements and our National History Museum collaboration. We are also working to accelerate our product development cycles to allow us to respond faster to trends and increase the choice we offer at all price and quality tiers. Our growing knowledge of more sustainable materials will also allow us to offer better choice to customers, as well as introduce more circular product design that uses more sustainable materials and facilitates repair and recycling.

The made-to-measure window treatments category is another example of our product elevation opportunity, where taking greater end-to-end control of the supply chain will enable accelerated growth and returns. Alongside our well-established manufacturing centre for made-to-measure curtains and Roman blinds, we have chosen to invest in more vertical integration. In FY24 we brought the manufacture of custom hard blinds in-house and started manufacturing roller blinds and Venetian blinds in the Sunflex business we acquired two years ago. Looking ahead, we are bringing shutters into our own manufacturing facility, with a plan to launch our new offer to customers in FY25. This will give us differentiated and advantaged product, the ability to specify materials and design, shorten UK lead times relative to competitors, and improve factory utilisation by aligning demand and supply capacity.

2. Connect with more customers

As we elevate our product offer, we will further improve how we connect our products to more customers through our total retail system. We have known for many years that the combination of stores and digital is the winning formula for our existing and target customers, and we are continuing to optimise our cross-channel offer, making the customer experience both easier and more personalised.

We have continued to open new superstores, with six new openings (including one relocation) in FY24, split evenly between our traditional c.30,000 sq ft size and newer smaller stores of c.15,000 sq ft. We are pleased with the returns of our new stores, typically paying back within three years, giving us confidence to open more stores in a range of sizes and locations.

We will continue to open 30,000 sq ft superstores in large catchments given their very strong returns, however supply of appropriate sites has become more limited, so we are being agile in our approach. In the early part of the new financial year, we completed the freehold purchase of a tenanted retail site, which we will look to convert to a Dunelm format in the future.

We will also open more smaller superstores, in smaller catchments and in the white space between stores in densely populated areas. Although this footprint is less developed for us, we are excited by what we have seen in our new smaller stores and by the opportunity to optimise sales densities and productivity as we continue to learn. Overall, having previously guided on 5 - 10 new openings in FY24 and FY25, we now see a runway for this rate of growth continuing into the medium term (expected to be evenly split between larger and smaller sizes).

In addition, and to better serve our target customers in inner London boroughs, we are testing some smaller stores in London. Our first inner London store, at c.5,000 sq ft, will open in the first half of FY25, and we are exploring other locations to unlock the opportunity with this significant segment of the UK population where we know we are under-represented.

Complementing our stores, we have made continued progress in our digital channels, building strong foundations in our front-end architecture and customer data platform. As we move forward, we are advancing through optimisation and experimentation, with meaningful opportunities for improving our proposition. Offering a more personalised experience to our customers takes many forms, and using our improved data and technology will be key to improving our proposition.

One example of this is a change to product discovery on dunelm.com, where we are implementing new AI search functionality in the first half of this year, having carried out testing in FY24. This will improve the quality, relevance and presentation of results when searching on our website, with test results showing fewer 'zero results' searches and more personalised results. This change moves us from earlier generation functionality towards an advanced AI solution. This will increase the appeal of searching on our site - a significant opportunity given customers who use search are four times more likely to complete a purchase than those who do not.

3. Harness our operational capabilities

Though operational grip has been a characteristic of the Dunelm business for some time, we recognise an increased opportunity to harness our operational skills and scale. An ongoing focus on continuous improvement will remain, driving annual productivity savings, and with elevated wage inflation, there is now more scope for attractive returns from productivity tools and automation. Here we will test and learn to ensure we adopt the most appropriate technologies for our products and business model.

We are making good progress in scaling our commercial operations, improving demand forecasting and replenishment across our stores and own distribution centres. Having carried out testing in FY24, we are in the process of rolling out new technology and ways of working in the first half of this year, introducing machine learning, automating low value tasks and reducing our reliance on manual processes and spreadsheets.

Going forward, there is more work to do in relation to our smaller store footprints, specifically developing our processes and tools for optimising space, grading and range planning. This level of commercial transformation will facilitate our expanding product ranges, the efficiency of stock management in our distribution centres and our different store locations and sizes, and the speed of product development. These are complicated developments, but we expect these new capabilities to help us grow our market share profitably, while serving more customers and increasing the advantages of our business model.

Downstream from demand forecasting, we have an ongoing programme of continuous improvement to maximise the utilisation of our network capacity and improve labour productivity in our supply chain. In FY24 we focused on a series of tactical initiatives, including the optimisation of shift patterns for our colleagues; reducing our rate of returned products; and diversifying our carrier network to improve variable costs.

In the coming years we will be working across our own distribution centres and with our supplier partners to increasingly automate our processes. Automation investment is becoming more attractive and we will find ways to optimise this for the specific product characteristics of homewares and furniture. For example, we will introduce simple automation of parcel packing and dispatch in our small-parcelhome delivery operation in conjunction with our supply chain partner.

Technology is moving rapidly but cannot provide the solution in isolation. It is the combination of technology and well-executed business change that leads to improvement. As we continue to test and learn, we are increasingly confident in our capabilities and capacity to do this successfully, in ways that deliver both growth and returns, in balance.

Summary and outlook

We delivered another strong performance in FY24, successfully balancing growth and operational grip in a soft market. We achieved high-quality sales and volume growth, and increased our PBT ahead of sales, whilst continuing to make progress against our strategic objectives.

We are gradually seeing improvements to economic indicators, however we are yet to see a meaningful change in consumer spending habits in our markets. In this context, we have made a solid start to the new financial year, against a strong prior year comparator.

We have refined our thinking on the key opportunities ahead of us, with three clear focus areas framing our investments and strategic priorities for the coming years, and we are confident we can accelerate into a consumer environment which presents a significant opportunity for market share growth.

We now have good line of sight to continued market share gains and expect to reach our next milestone of a 10% total share in the medium term. We are very confident in our business model and clear plans that will continue to deliver sustainable growth and unlock our full potential as The Home of Homes.