Dunelm plans to cut £100m of ‘unproductive’ costs in three-year strategy

Dan Coatsworth, head of markets at AJ Bell, insists heatwaves have had an impact on Dunelm after it announced a three-year cost-cutting programme.

He said: “Dunelm looks to have fallen foul of the wrong kind of weather as the sun was shining too bright over the summer to entice people into its stores.

“Retailers constantly look for a Goldilocks scenario for their seasons – just the right temperature to get people out of the house and shopping, but not too hot or cold to put them off.

“The kind of heatwave we’ve just seen in the UK was clearly too much for some people, keeping them in the cool of their home rather than sweating it out in retail parks or the high street.

“A warning about weaker trading in July and August has knocked Dunelm’s shares for six, sending them down 10 per cent as analysts sharpen their knives to cut profit expectations. It’s not the ideal scenario to launch a new three-year growth plan.

“Dunelm wants customers to spend greater amounts and keep coming back for more. It is prepared to invest in the business, and it wants to keep the balance sheet looking healthy.

“That’s a sensible blueprint and is more akin to something all retailers should have imprinted in their DNA rather than adopting as a radical idea to reinvent the wheel.

“There is the usual talk of wanting to find new cost savings, making sure it offers something for everyone, and wanting to do things faster. Again, these make perfect sense. This is a growth plan that has common sense at the core. The proof will be in the pudding as Dunelm needs to prove to the market it isn’t just another value-led retailer chasing quantity over quality of sales.

“It will clearly have to spend money to make money, with plans to upgrade existing stores and open new ones. While that has the potential to generate benefits down the line, investors are increasingly short-term in focus and might simply see these efforts as gobbling up cash that might have otherwise been used for greater share buybacks and/or dividends.”