Broker snap: Easing comparatives for Dunelm

18th Feb 2011 10:20

Nomura maintains positive about bedding and curtains retailer Dunelm, saying that while the first half saw higher costs, investors should expect a better top line from the fourth quarter onwards.A 14.3% rise in costs limited operating profit to just 5.4% growth, as the group experienced £0.5m of warehouse expansion costs and an onerous lease charge of £0.75m. In the second half the group is expected to see higher depreciation and new head office running costs, says analyst Christopher Walker.While growth has been limited in 2010, the Japanese broker notes that comparatives should ease in the future: having annualised +15.4% and +11.6% like-for-like sales in the first and second quarters, respectively, comparatives fall to +7.1% and -1.9% in the third and fourth, respectively."In our view, the third quarter may remain challenging, given the recent VAT rise and macro headwinds, however the fourth may represent a slowing of internal investment and an easing comparative," says Walker. The target price is 550p.