Dunelm Group Plc (LON: DNLM) returns back £14.5-mn claimed under furlough scheme

Summary

• The company’s strong financial performance has prompted its management to return a part of the money claimed under the furlough scheme
• The company has decided that it would not claim any retention scheme bonus from the government
• Many companies have returned the money they had received under the furlough scheme

Homeware retailing company Dunelm Group Plc is the latest company in the United Kingdom which has decided to return the furlough stimulus money it had received to support its staff through the lockdown. The company has performed strongly in its quarter ending period 26 September and has registered a 36.7 per cent jump in sales amounting to £359.1 million led by its online sales vertical.

CEO Nick Wilkinson stated that in recent months when people started to spend most of their time at home, the need for homeware was accentuated, which led to their growth. While being very confident of the company's resilience to withstand a winter resurgence of the pandemic, he added that the flexibility of their business model puts it at a commanding competitive position.

Strong financials  

Dunelm Group recently came out with its annual results for the financial year ending on 27 June 2020. The revenues generated by the company for FY 2020 stood at £1.057 billion, whereas for the previous year FY 2019 the corresponding value was £1.1 billion.

The gross profit generated by the company for the year stood at £532.4 million (FY 2019: £545.6 million). The operating profit earned by the company stood at £116.0 million (FY 2019: £126.9 million). 

The annual profit earned by Dunelm for FY 2020 stood at £87.7 million, whereas for FY 2019, the company had earned a profit of £101.3 million. The basic earnings per share were valued at 43.4 pence (FY 2019: 50.2 pence).

The cash and cash equivalents in the books of the company totalled £90.0 million on 27 June (29 June 2019: £19.0 million).

The bank loans in the books of the company were worth £44.6 million on 27 June 2020 (29 June 2019: £44.3 million). However, the group incurred a lease liability summing up to £266.4 million in FY 2020, which did not exist during the previous year.

The share price performance  

(Source -Thomson Reuters)

Over the past three months, the shares of the company (LON:DNLM) have performed strongly at the London Stock Exchange. On 16 October, the shares of the company closed at a value of GBX 1,442.00 per share losing 2.70 per cent over the previous day's close. On 16 July 2020, the company share was trading at a lower value of 1255.00.

As on 19 October 2020 (8.53 PM GMT+1) the shares of the company were trading at GBX 1,446.00 per share gaining 0.28 per cent over the previous day's close.

Government’s furlough support

The furloughing scheme was the government’s way to protect thousands of small, medium, and large businesses from going bankrupt due to the pandemic. When the pandemic first hit the country, it was immediately realized that revenue levels for most businesses would fall as a result of a smaller number of people wanting to come out of their houses for fear of the infection. 

When the lockdown was imposed on 23 March almost all businesses were shut for an indefinite period. It was obvious that businesses who were dependent more on their cash registers will be the worst hit and the employees would face an increased threat of unemployment than other industries. For any country, the small and mid-sized businesses are the backbone of its economy; hence the crumbling down of this segment of the economy could have long-term consequences for the country.

Since the opening of the economy in May, many industries have witnessed a strong revival, only because of the lucid loan schemes and the furloughing scheme. The most important aspect of the scheme, however, was that the employment rate in the country was checked to a reasonable extent, though it is still quite high. 

These schemes, though costing a lot to the British exchequer, have helped it avoid a much bigger financial disaster should businesses have failed because of the lockdown.  As per the latest HMRC (Her Majesties' Revenue and customs) estimates, so far more than 80,000 businesses have returned the money they had received under the furlough scheme, which sums up to more than £215 million.

Outlook

The returning of the furloughing loan by the benefitting businesses in the country will go a long way in helping the government extend the scheme to those who have not witnessed any substantial recovery. If this trend continues, then the government's debt burden could be lower than previously estimated and would help the economy post an early recovery.