Dunelm Shares Rise After Deutsche Bank Upgrades Stock to 'Buy'

Shares in Dunelm (LON:DNLM) rose sharply in early trading on Thursday after Deutsche Bank upgraded the homewares retailer to "Buy" from "Hold." The bank's analysts pointed to the potential for stronger earnings growth driven by faster store expansion, refurbishments, and digital enhancements.

The Upgrade and Market Reaction

In response to the note, Dunelm's stock climbed 3.58% to 861.78 pence by mid-morning in London, significantly outperforming the broader FTSE 250 index. Deutsche Bank raised its price target on the stock to 1,050 pence from a previous 850 pence.

The new target implies a potential upside of approximately 25% from the stock's closing price on September 2, according to the bank's analysis. The upgrade follows a period of underperformance for the retailer, whose shares were down about 25% year-to-date before Thursday's session, lagging the FTSE 350 Retail Index by around 30%.

Analyst's Thesis

Deutsche Bank identified several potential catalysts for the company, anticipating that a strategy update scheduled for September 8 will be positive for the stock. The bank's thesis rests on several key growth drivers:

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• Accelerated Store Rollout: Analysts forecast an increase in new store openings, projecting nine in fiscal 2027 compared to an estimated three in fiscal 2026.
• Estate Refurbishment: The report noted a significant opportunity for store refits, estimating that around 10% of Dunelm's stores are due for a major refurbishment and about 60% have not been updated since before the pandemic.
• Digital Strategy: The full launch of a new mobile app in February is expected to improve customer conversion, spending, and data collection.
• Market Share Growth: The bank highlighted Dunelm's long-term goal of increasing its UK market share to 10% from an estimated 7.9% in fiscal 2025.

Revised Financial Forecasts

Driven by expectations of stronger sales and a larger contribution from new stores, Deutsche Bank raised its fiscal 2027 profit-before-tax forecast for Dunelm by about 4%. The bank now projects a profit of £219 million, up from its previous estimate of £210 million.

Analysts at the bank are modeling approximately 4% sales growth for fiscal 2027, with the growth expected to be split evenly between like-for-like sales and contributions from new retail space.