Jefferies has moved Dunelm to a "buy" recommendation from "hold" after the UK homewares retailer experienced a near 20% decline in its share price following a weaker trading update for the second quarter. The broker attributes the sell-off to a guidance cut that trimmed full-year FY26 profit before tax expectations by about 4%, alongside a slowdown in revenue growth to 1.6% in the second quarter from 6.2% in the first quarter. Jefferies noted that first-half revenue growth still stood at 3.6%.
Despite the share-price weakness, Jefferies left its earnings forecasts unchanged, expecting profit before tax to grow by 2% in FY26 and by 5% in FY27. The broker calculates that Dunelm is trading at around 11x forecast FY27 earnings - approximately 30% below the company's long-term average valuation, in Jefferies' view.
Valuation and price target
Jefferies maintained its price target of 1,075p, which the broker says implies roughly 16% upside from the prior closing price of 930p. Dunelm's market capitalisation was listed at a31.9 billion.
Operational and financial performance
Jefferies highlighted that Dunelm continues to produce steady top-line growth and reliable cash generation. Reported figures show revenue rose to a31.77 billion in FY25 from a31.71 billion in FY24, an increase of 3.8%. Revenue is forecast to reach a31.84 billion in FY26 and a31.92 billion in FY27.
EBITDA was a3303.9 million in FY25, up from a3293.9 million in FY24, with forecasts of a3305.1 million in FY26 and a3317.2 million in FY27. Underlying group EBIT stood at a3222 million in FY25, up from a3213.3 million a year earlier, and is forecast at a3221 million in FY26 and a3232.5 million in FY27. Underlying profit before tax was a3211 million in FY25, compared with a3205.4 million in FY24, with forecasts of a3214.4 million in FY26 and a3225.9 million in FY27.
Jefferies also pointed to a maintained gross margin above 50%, with a FY25 gross margin of 52.4%. Free cash flow was a3113 million in FY25, down from a3132.1 million in FY24. Dividend payments in FY25 included an ordinary dividend of 44.5p and a special dividend of 35.0p per share.
Market dynamics and broker view
The broker said the recent trading weakness reflected a combination of heightened competition, softer furniture sales and product availability issues that have since been resolved. Jefferies described the market's share-price reaction as disproportionate relative to the limited change in earnings expectations, which underpinned its upgrade.
Dunelm operates around 200 out-of-town superstores across the UK and is the country's largest home furnishing retailer. The founding Adderley family retains a majority stake, holding more than 40% of the company.
Analyst stance
Jefferies has kept its profit forecasts in place while raising its recommendation, signalling that the broker views the current valuation as an opportunity given the company's profile - steady revenue, resilient margins and consistent cash generation - in a fragmented UK homewares market.
Summary of key facts
- Shares fell about 20% after a softer Q2 trading update and guidance that cut FY26 profit before tax expectations by about 4%.
- Dunelm is trading at roughly 11x forecast FY27 earnings, around 30% below its long-term average valuation per Jefferies.
- Price target remains 1,075p, implying about 16% upside from a prior close of 930p; market capitalisation a31.9 billion.