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Margin pressure pushes Dunelm shares lower

(Reuters) - British homewares retailer Dunelm Group warned that annual operating costs might outstrip sales growth as it invests on the integration of its Worldstores acquisition, sending its shares sharply lower on Tuesday.

Dunelm, which sells cushions, bedding and kitchen equipment, said profit before tax and exceptional costs for the 26 weeks to Dec.30 fell 8 percent to 60 million pounds as margins shrank by 1.8 percentage points.

Dunelm, which parted company with its chief executive last year, said Chief Financial Officer Keith Down will step down in June to move closer to his family home.

Shares in Dunelm fell more than 9 percent to 586 pence by 1005 GMT after Chairman Andy Harrison said the consumer environment remained challenging.

Dunelm blamed a higher slice of end of season and seasonal product lines in the sales mix and lower margin Worldstores sales for the profit shortfall.

Dunelm purchased WS Group, which includes Worldstores and Kiddicare,out of administration for 8.5 million pounds in 2016 to boost its online presence.

A sales boost from that buy and a surge in online orders helped Dunelm to register an increase of more than 18 percent in total sales for the half-year with a 6 percent rise in like-for-like sales.

However, Dunelm said a "weakness in the legacy Worldstores business" and continued investment in infrastructure would lead operating costs to grow slightly ahead of sales in the full year.

Nick Wilkinson, the former boss of Evans Cycles, joined the company as chief executive this month.



(Reporting by Rahul B in Bengaluru; Editing by Gopakumar Warrier and Keith Weir)