Dunelm Group plc

Squeeze. Morning, everyone. We're going to get started. We've got some online guests, so we're going to get going. Are we good to go? Yes. Great. Well, good morning and a particularly colourful welcome to the Dunelm Interim's presentation covering the first half of our financial year to the end of December. My name is Nick Wilkinson and Alison Britton and Karen Witts and I are delighted to welcome you to the offices of Peel Hunt in London. Whether you're here in person or joining virtually, I hope you're well and thank you for your continuing interest in the story of Dunelm. We'll use this presentation to bring some colour to how we are developing the business and the results we are achieving. It's our normal running order. I'll introduce the highlights. Karen will then go through the first half financials and guidance. And I'll be back to share more on our plans as we carry on unlocking our full potential as the UK's home of homes. So with an image from our edited life range to show that even if colour isn't your thing, we can still give joy to your home, I will get started. But before I do that, I would just like to acknowledge the other announcement this morning, that at some point I will be stepping back from full-time executive life and retiring from Dunelm. As you'd expect, we'll be ensuring a first-class transition, smooth and orderly, no dates, just a recognition from me that as I start my eighth year, this is the right time personally to be making a transition and allow myself to do more than one thing, including to better support the many charities and projects that are close to my heart. This is quite simply the best job in the best company with the best team that I have ever known, and I will be forever green. And those of you who know me well will know I'd far rather be talking about the business and our plans and results than about myself, so let's just do that. There will obviously be a comprehensive process to appoint my successor, and Alison and the company will keep you informed of progress. So it was a good half, more for the quality of the growth we achieved than the quantum. Sales driven by volume growth at strong gross margins with good cost grip and continued progress in market share and customer numbers up over 4% in the rolling 12-month view that we're showing here. Underlying free cash flow generation was good and affords our interim dividend of 16.5 pence and a special of 35 pence. Mindful of the times, many businesses are expressing caution. But we also know from our history that it's in times like this that by being clear-sighted and purposeful that we can build a bigger and better business, which is exactly what we are doing. So while we'll always be level-headed and disciplined, first and foremost, we are excited and active in improving our customer offer and strengthening our advantaged business model. So we drive good growth and good returns first and foremost by seeking to understand our customers better than anyone else. We saw in the first half an increasingly diverse set of consumer missions. While some saw growth in real wages, others were more worried about job security and or housing costs, while others still sought to distract themselves from their concerns and worries with occasional treats. Staying relevant as consumers rapidly cycled through Halloween, Black Friday, gifting and Christmas hosting missions played to many of our strengths. Outstanding value, breadth of choice, complementary digital and store channels. Understanding our customers allows us to become more differentiated as a specialist and we do see the playing field splitting here. We are elevating our product through design and our channels and at the same time ease and convenience is becoming increasingly important. And we saw a significant improvement in our click and collect growth rates when we became a better one-stop shop for those customers. Karen will explain the approach we're taking to labour cost headwinds, harnessing our operational strengths to drive good growth and returns. We've offset a significant proportion of labour inflation over the last five years through continuous improvement, and we now also see opportunity for technology and process change to drive further operational efficiency through targeted investment. Pure productivity initiatives alone won't fully offset all of the labour cost headwinds that we see coming, but we have other levers to increase our cost leverage through our growing scale and skills. So you find us mindful of the environment, close to our customers, continuing to invest with discipline, growing our appeal and differentiation specialist, and excited about the opportunities ahead. More on that shortly, but I'll now hand over to Karen to continue the story by updating you on the half.

Thank you, Nick. Morning, everyone, and thanks very much for taking the time to be with us this morning. So, as usual, I'll start with a summary of our half-year financial results. Then I'll take you through the performance in more detail. As Nick said, we're pleased to be reporting another good set of results demonstrating progress and growth in a challenging market. We grew sales in the first half by 2.4% to £894 million. Our growth was again driven by volume as we continued to offer customers an even better proposition, combining choice, value and relevance in-store and online. We kept a good grip on our gross margin and expanded gross margin percentage by 10 basis points year-on-year globally. to 52.8%, keeping prices broadly stable, being disciplined on promotional activity and managing input costs closely. This management grip continues to be really important in an environment of rising costs, particularly driven by labour cost inflation. We're balancing inflationary pressures alongside our investment plans for the near term and the future, all the while ensuring that we continue to deliver productivity gains. Profit before tax of £123.2 million was very slightly up in the half, with earnings per share growth of 1%, reflecting a normalisation of our effective tax rate after a one-off adverse impact last year. Our cash generation remains strong. We're reporting a headline number of £168.5 million and a half-year net cash position of £57 million. However, as I'll explain in more detail, these figures include a very temporary favourable timing difference on payables of about £90 million. With healthy cash generation and confidence in our business model and prospects, the Board has declared an interim ordinary dividend of 16.5 pence, up just over 3% year-on-year, and we are also announcing another special dividend of 35 pence per share. Let me now take you through a view of our market share gains, which we've delivered by growing sales, customers and digital penetration, all of which we've been investing in. Sales grew by 2.4% in a soft market. Digital sales made up 39% of our total, up 3 percentage points year on year. As a reminder, digital sales include click and collect sales which are ordered online and fulfilled in store. Click and collect sales grew significantly in the first half. Our market share at the end of H1 was 7.8%, up 30 basis points year-on-year against a challenging backdrop, and we also saw 4.3% growth in customers. Active customer growth is a good data point to show that our plans are working. The growth in customers is consistent with our demographics, very broad-based, and we believe that we're very well positioned to take advantage of consumer recovery when it comes. We were pleased with the quality of our sales, which were delivered with a focus on bringing more of our range, more conveniently, to more of our customers. For example, through our expanded click and collect offer, all the while maintaining our outstanding value proposition and our focus on our good, better, best offer. As well as sales growth, we delivered gross margin growth, expanding our gross margin percentage by 10 basis points year on year. The freight cost environment is rather less volatile for now. Red sea surcharges remain, but costs in the half were relatively stable. And we're managing what is for us a slight FX headwind through other input cost control. We've maintained our outstanding value proposition and kept retail prices broadly stable. We were also disciplined around our approach to promotional activity in order to underpin the quality of sales growth. We're now guiding full year gross margin percentage to the upper end of our previous guidance, which was 51 to 52%. The pressure on costs in the retail environment is well documented. I'd like to show you here how we've made our decisions around investment and efficiency in this ongoing inflationary environment. And on the slide after this one, I'd like to explain our approach to managing costs. In the first half of this year, our operating cost base grew through a combination of volume-driven cost growth, inflation and investment, partly offset with efficiency and productivity gains. Volume growth of £7 million included the variable costs associated with digital sales, including click and collect expansion. Sales, marketing and distribution costs are the most impacted by hourly wage inflation. Aside from this, we're tightly managing inflation in our non-wage base to limit the overall impact to £9 million over this time last year. The £8 million increase in investment includes investment in the customer proposition, for example in improving search, which Nick will speak about, and continued investment in our made-to-measure capability, both in manufacturing and in store, as this is a category where we see lots of opportunity. As you can see, we offset our incremental investment spend with increased productivity benefits amounting to £11 million. Some of this was tactical and aimed at mitigating wage cost inflation as we optimised work patterns in stores and worked on continuous improvement plans. And we also saw the results of investment already made in digital functionality and capability, which, along with scale, enabled savings for marketing efficiency. Over the last five to six years, we've already managed the impact of significant wage inflation, which we've done through a combination of tactical and operational initiatives and leverage from our increasing scale and capabilities. As a result, we've been able to hold out our investment roadmap and maintain broadly stable margins. We believe that it's important to continue to find and deliver on these continuous improvement initiatives, which pay back quickly. As I flagged at our prelims presentation in September, we're also targeting investment in longer-term efficiencies like self-serve checkouts. We're optimising capabilities that we've already invested in and we're working on bringing our processes closer to our systems. This approach will ensure that we maintain an appropriate balance of investment and returns in any one year. Last but not least, in order to deliver long-term sustainable growth, we must continue to prioritise our value proposition through leveraging the advantages of our business model on input costs and through our rigorous approach to our good, better, best strategy. By doing this, we would still expect to maintain broadly stable operating margins. Profit before tax of £123.2 million grew very slightly year on year. You will see that our effective tax rate of 25.6% is back within our guidance of 50 to 100 basis points above the headline rate of tax. This has had a positive effect on diluted EPS of 45 pence, which grew by nearly 1%. Cash generation remains strong in the half. As I explained, we are reporting a headline free cash flow of £168.5 million. However, this includes a timing difference on working capital, which created a very temporary inflow of £88 million. because of a payment in transit at the end of the period, which cleared on the first working day of the second half. There was nothing unusual about the payment. Inventory was well controlled, and we ended the half with inventory down £3 million versus the prior year. CapEx is higher than we've seen recently, as early in the financial year we acquired a freehold site in a white space location that we'd been looking at for a while. The property is currently occupied and will be converted to a Dunelm store in the future. These opportunities are unpredictable and unusually we're working through another target area. We're working through another acquisition in another target area. This transaction has not yet completed but assuming that it does we're now guiding capex for the year higher at £60 to £70 million. We still remain a capex-like business and we take significant amounts of investment through our P&L while still managing a broadly stable margin. We ended the period with a headline net cash position of £57.1 million, which is more like an underlying net debt of around £31 million after adjusting for the payment which cleared just after the period end. As I said, we're a capital light business with a capital allocation methodology that returns surplus cash to shareholders after prioritising investment in the business for growth. And in this half, we're continuing our strong track record of shareholder returns. The Board has declared an interim dividend of 16.5 pence per share, up 3% year-on-year, and the Board has also declared another special dividend of 35 pence per share. These distributions reflect our view of the strength of the underlying business and our confidence in its future prospects. I'll finish by summarising our guidance for FY25. We believe that the consumer outlook will remain challenging. However, we're confident that with our outstanding customer offer of value, choice and relevance, we'll continue to gain market share in line with our expectation that we'll reach a 10% share over the medium term. We've delivered a strong gross margin over the last six months and we expect to finish the year towards the upper end of our guidance, so between 51.5% and 52%. We're working hard on mitigating inflationary pressures, especially wage inflation, in a sustainable way. We expect our effective tax rate to be 50 to 100 basis points above the headline rate of corporation tax. From a cash perspective, we expect a small working capital inflow at the end of the year. We're raising our CapEx guidance to £60 to £70 million to reflect investment in five new superstores, which is in line with previous guidance, and assuming our second freehold acquisition completes in H2. Our PBT expectations remain unchanged and are in line with market expectations. So thank you for your attention and I'll now pass back to Nick.

Great. Thanks, Karen. Let me bring some more colour then to our plans for the second half and beyond. This image from our current television commercial is the visible tip of the iceberg of that work to grow our market share. In a fragmented market with so many consumer and technology dynamics playing out, we have many levers in our hands to grow a high quality and sustainable market position. So how do all those levers fit together? We have three broad focus areas which frame our priorities and investments. These focus areas, as I shared in September, are an evolution of the strategy we have followed over many years. In a nutshell, and written out on the right-hand side, we drive sustainable growth through the combination of elevated product, the development of our channels to offer better shopping experiences to more customers, and the harnessing of our operational capabilities to create productivity as we grow. These pillars bring compounding benefits, and a number of our initiatives straddle two or even three different pillars, which necessitates a high degree of cross-team collaboration, something which our values and culture sets us up well to do. You can also think about this growth in terms of progressing along multiple product category runways, and in each runway we have significant headroom in terms of awareness, consideration and purchase conversion. Sorry about that. The weighting of these opportunities between awareness, consideration, and purchase conversion varies by category, and therefore we pull different levers by category. If you like, we're becoming a multi-category specialist. As our system grows, we're able to attract more customers and increase our share of the purchases of existing ones, hence the home of homes and the expectation to drive our market share to 10% in the medium term. As we head towards that milestone, it's been a busy half with progress on both familiar themes and the start of some big new moves for the longer term. So let's go into each of the focus areas and I'll give you a couple of examples on each. As you know, we are relentless as a specialist about offering better value to our customers. And better value means you'd need to pay more to get the same quality in another retailer. Our average item value is under £11 across the business, but our ranges are very broad. So how does that work? Here are two examples from our textiles heartland. We describe our range as spanning price quality tiers from good to better to best, and there can be upwards of a dozen different tiers where the scope for genuine differentiation allows. In this towels example, we offer nine price quality tiers between the £4 good tier special buy and the £24 highest price tier soon to be launched. Those prices for a standard size bath towel. And right in the middle of this assortment is our best-selling Egyptian cotton towel range, where we have recently increased quality to offer better value. The upgrade includes a higher weight fabric, a finer yarn, more durability and more stitching in the hem. We're also increasing the choice of colours over the next two seasons to reach a staggering 50. That in turn creates opportunities. As I said, we'll shortly introduce our highest ever weight towels at the top of the range, and at the good entry tier, we're increasing the size of our special buys to take advantage of mill capacity. The second example is for curtains and blinds, tracks and poles. Here our ranges extend from a flat pack ready-made curtain pair from £15 to a professionally fitted made-to-measure curtain or blind. Again, we're busy up weighting value for our consumers. Luna is a best-selling collection in the core of the range, made up of beautiful plain colours. We're upgrading the colour choice, extending by autumn-winter to 37 different colours, and those colours now coordinate across many categories, including cushions and bedding. Meanwhile, in tracks and poles, we've simplified choice at the good and better tiers, we're improving packaging, and for the first time, elevated our metal poles range into the best tier, with new metal finishes of the highest quality, at prices significantly below $1,000. the equivalent quality in a department store. Elevating our product is also about creating products and collections whose style delights and surprises our customers. And we have been surprised ourselves by the positive impact of Braver Designs on sales. But with so many of our products first being seen in a Google Shopping ad thumbnail or from a friend or influencer on social media, it sort of makes sense. but elevation through design has to be built over time with deep capabilities. In our core textiles categories, that expertise lies in the combination of our long-term committed suppliers and our own design team, Dormer being a case in point, which recently received a Royal Warrant from His Majesty the King. Meanwhile, in furniture, we've built design skills in-house alongside a growing network of UK and Asian-based factories. In the left-hand picture, the five-day delivery of Beatrice Sofa has now broadened into other products, including in seven bold woven stripe colourways. We also seek collaborations which elevate our product further than we can reach ourselves. This collaboration on the right-hand side with Sophie Robertson The Queen of Colour is a unique maximalist collection which has just launched. For designers like Sophie, the appeal of working with us is the ability to create and coordinate across multiple categories, from bedding and curtains to lighting and furniture to home accessories and even into stationery. This year we're also elevating some of our long-term collaborations, notably with the Natural History Museum and extending designs from the William Morris Archive into finished products in addition to fabrics. Connecting with more customers means improving channel reach and experiences. We do this best when we optimise each channel as part of our total retail system. Our customers, indeed, don't talk about channels. They just go shopping across them. So let's start online. Our products are the key to digital optimisation because they make personalisation meaningful for consumers. Put simply, to serve you relevant content... We personalise search results, we personalise as you browse, and recommendations for complementary products. We took a big step up on this with new AI-powered tooling on the site, which we are still tuning and expanding across our ranges. The left-hand picture shows an example interpreting the intent of the search words, here that soft relates to colour, and ordering results based on what we think is most appealing to you as an individual. Social proofing is also newly added and working well in the very first use cases we're putting it to. That's the right-hand side image, giving affirmation to our customers about popularity and quality. And while social proofing isn't new, it is for us and we're using it to give confidence rather than to create fear of missing out. Whilst each example may feel small, this aggregate impact of optimisation is significant and is now an enduring value driver for us. Different to optimisation, a big new move for us will be our app, which will be fully functional as a transactional shopping experience for launch this summer. We're excited about this opportunity, providing a cost-effective route for reaching more customers at more stages of their shopping journeys, from inspiration at the very start to functionality that improves in-store and online browsing. Westfield Store is also an example of optimising, in this case for an urban store, our first in London, in a large fashion-oriented shopping centre. Its job is to build awareness for consumers who haven't heard of us yet and to build consideration for those who've heard of us but don't really know us. So the store is merchandised to surprise, with the quality and value of individual products and the ease of coordinating across categories to create a stylish interior. It's early days and we're pleased with the performance, including the proportion of customers who are new to us and the degree to which customers are using the store in conjunction with our digital offer for home delivery and to collect online orders. All of this reaffirms for us the appeal of our products to Londoners and the opportunity to reach them through our digital channels and a portfolio of different store formats, a few smaller ones in inner London and more and better super stores in outer London. Our confidence in a multi-format approach to our store portfolio is giving renewed impetus to our store roll-out plans. In the second half, we expect to open up to five new stores, which will be a mix of smaller ones of about 10,000 to 15,000 square foot selling area and larger ones of 30,000 square foot. We're still pursuing catchments. We've targeted since we began rolling out superstores over 25 years ago, and to this we're now adding smaller catchments. Merthyr Tydwell is an example in the second half, and some infill in densely populated areas. Bracknell opening this Friday, an example of that. Now, Ireland, our first chance to talk to you about the acquisition of Home Focus, which took place last November. It's a soft furnishings retailer focused on textiles, specialising in ready-made and made-to-measure curtains with 13 stores in high-quality locations across Ireland. Smaller stores for us, none larger than 10,000 square foot. We like the quality and the values of the business, and we see an opportunity to connect our product with customers in the £1 billion Irish homewares market. Since owning the business, we're pleased with what we've seen. We've started selling Dunham products, but it's early days, as you can see from the pictures. There's lots to do and a multi-stage, multi-year journey to raise the bar on the customer offer and on operations. That will include setting up our digital platform to serve customers in Ireland. And the approach we take will, in due course, give us the capability to connect our product to customers in other countries too. We're taking things step by step, starting with building profitable sales growth in Ireland, in stores, and then online. Back to the UK and our third focus area, harnessing our operational capabilities. I'm going to start by talking about Click and Collect because it's a good example of an initiative that drives both growth, cost leverage, and some new efficiency opportunities. So what's happened with Click and Collect? On the left-hand side is what customers have seen, a dramatic change in their online basket to make many more lines available for collection in their local store. We're now much better at being a one-stop shop, if you like, rather than expecting customers to manage a fragmented order with some items only available for home delivery. and others only available for collection in-store. We've done that by setting up far more of our non-store stocked ranges to be available for collection, so that now over three quarters of our range by sales value of suitable products can be collected in your local store. That in turn creates opportunities for efficiencies, which we're now focused on. Higher volumes make it more efficient to pick those items that are being sent to the store and are already in the store. So we're picking by department rather than by customer order. And click and collect customers can now self-serve. Texting a code when they arrive in store, we bring their items to a collection point, which we're now moving closer to our tills. A further opportunity is to flow the items that are being sent to our stores for collection through lower cost fulfillment channels. And finally, we've got the opportunity to select the most popular lines for collection and put those into our store ranges in every store across the country. Now two examples of productivity initiatives that illustrate the approach that Karen described earlier. The first is in performance marketing, where we are leveraging the growth and the skills we're building in our digital channel. To give you a sense of scale, the efficiency of our digital channel continues to improve, and this work is a strong contributor to the £11 million productivity improvements that Karen showed you earlier. How are we achieving that? We're now optimising our performance marketing spend using our data analytics and our skills across more of the customer journey, from the top of the funnel to the bottom and across more channels. At the same time, our site performance is improving conversion and thus our paid advertising efficiency. Site performance covers many things from speed to quality. And on the left-hand side is an example of better search results from our new tooling on the site compared to its predecessor. With confidence in our capabilities, we're now extending our data science and experimentation into other areas, the next being personalised incentives to customers that can be used in stores and online. The second example is more tangible. We're rolling out self-checkouts into our stores. We've had trials in place for over a year in a small number of locations, during which time we've optimised the equipment and the processes for customers and colleagues alike. Many customers prefer to have the choice to self-checkout. We're now rolling out to stores, our largest ones this year, and we'll get to 100 by the end of next financial year, remodelling the space and design of stores in the area of the tills at the same time. With the technology well developed and labour costs rising, this programme will pay back in less than three years. Examples like this, across our stores and supply chain in particular, blend continuous improvement and larger change programmes, harness our scale and skills and give us confidence that we can increase productivity significantly while further strengthening our unique proposition and business model. Now, I began by talking about our ability to understand and serve our customers. So let's end and round things up by talking about growth and the outlook. We grew our sales in the half. The quality of growth in this environment was particularly good and I'm pleased that we grew volume at the same time as delivering strong gross margins and that we also grew market share and customer numbers across the breadth of UK regions, age groups and income bands. We remain highly ambitious, fully focused on driving high quality growth and returns by elevating our product extending and optimising our channels and harnessing our operational capabilities. Our model, Own Brand and Specialist, allows us to raise the bar on giving customers outstanding value and create new growth platforms like the app and a multi-format approach to store rollout in parallel with good financial discipline. We're also encouraged by early trading during the second half. Consumers are not letting go of the reins just yet, but we've had a good sale and growth rates have carried on being strong since then. Our new ranges have landed well and the weather is cold, which we like at this time of year. Our expectations for the full year are unchanged and in line with consensus. As you know, we are still a far from mature business. We've only been national with stores and on the pitch with a good digital offer for about five years. There's so much more high quality growth that we see ahead of us. Our next milestone, 10% market share in the medium term, is firmly in our sights. So thank you for listening. I hope you enjoyed that. And Karen and I are now delighted to answer any questions you have. So, normal format, we're going to start with questions. I mean, we do have a couple of analysts online too, so we will go to them at the end of the call. If you could just raise your hand and just remind us all of your name and institution, that would be great. Where shall we start? John.

Morning, John Stephenson at Pale Hunt. A couple of questions to get us going. Can you talk a little bit more about the Westfield store and the more interesting KPIs specifically, I guess, coming out of that, and therefore how it's informing the store opening? I guess it's difficult to get hold of sites, but where... Not that there has to be an end journey, but conceptually, obviously, we're going, I guess, more close to 250 than 200. But can you talk about how you see that working out and how the balance might be between the sort of small infills and everything else? And then just on the international piece, I mean, clearly, obviously, immediate opportunities island. But how are you thinking about the internationalization of Dunelm in the broader sense and selling product internationally?

Great. Thank you. Shall I go in? Cam, please do add in if you've got more to add. So, I mean, Westfield is new. It's fairly recent. So let's not get overexcited about the first weeks of trading. But, you know, we're really proud of it. When we committed to it, we wondered whether we'd show up in a way that made us feel proud in that environment. And we feel really proud when we see the store. Sales are good. It's got some of the highest conversion of any store we've got in the country, which is really encouraging. So it looks great, but also people are picking things up. It's got a particularly high proportion of new customers, which sort of stands to reason. It's our first store in London. And it's got, as I mentioned in the script, particularly good interplay with our digital services. So high levels of people ordering in store for collections that aren't available in the store. They have delivered to their homes and even collecting it in store, which is surprising given that it's not a car park adjacent to it. So all of that makes us feel very confident that actually we've got products that inner Londoners really, really want to have. And I think you probably heard me in the past say we want as few shops as possible whilst still being convenient. I think that would change now to being we find it hard to imagine serving parts of the country without the combination of stores and digital presence. And that makes us see more opportunities for store expansion. We'll do that in our typical fashion, which is step by step learning as we go. We're delighted with the returns we're getting on the smaller stores that we've been opening over recent years. And we're still delighted about the returns on our biggest super stores. So you see a blend of those openings in the second half. We probably wouldn't have bought the Irish business if we hadn't fallen back in love with smaller stores in recent years. And when we see their smaller space, we're confident that when you... complement that with a good online offer, then it's a great way of serving customers as a multi-channel retailer. So I think it's given us quite a lot of learnings just in the few weeks and months we've had it. Yeah. Anything more to say on Westfield?

We're not changing our guidance on the five to ten superstore openings per year. I'm sticking with that. And then we'll have some smaller ones.

It is quite a wide range. We're opening five in the second half. I mean, supply of sites remains the challenge. Yeah, it's a challenge. And, you know, we'll never compromise our sort of economic returns just because we really want to be in a postcode. We're still looking in towns like Tunbridge Wells and Guildford that we've been looking at for 25 years. So, yeah. One day. One day, exactly. So, I mean, that's Westfield. I mean, Ireland's interesting because we're very confident that we can win market share in Ireland. We compete against many of the Irish retailers in the north and do so successfully, and we have a really good business in the north. We already know that our products are popular and selling well, but it's a number of stages and steps we need to go through. So we're learning about Irish consumers. They are different. We don't presume to know how they want to decorate and enhance their homes. So we're learning that. We've got great colleagues in the business. But there is a multi-stage, multi-year journey, which we'll see that business develop. And as part of that, we'll develop our website. So our UK tech stack at Reefskin to serve internationally, initially in Ireland. And that obviously creates the, OK, so there's more addressable market within our reach. I'll just emphasise the sustainability and quality of our sales is what motivates us and what we get up in the morning to do. We could sell towels now to Brits in Spain, but that's not a sustainable high-growth business. So we will learn by becoming more international how to best do that. And we'll take actually probably more of an experimental route to seeing where there's interest in our products across the rest of the world as we get into that. But that's all for the future.

Good morning. Richard Chamberlain, RBC. Can I ask a few questions on click and collect, if that's right? It's obviously a focus of the presentation. I wondered if you could just update us on the level of participation of click and collect within the overall sort of online space. Maybe talk about if that outperformance continues, how would that affect the margin dynamics of the business? Could that be margin accretive over time? And then also how you're set up for click and collect in Ireland or any plans there as well. Thank you.

Great. I mean, we stopped giving disclosure on subsegments of our total retail system a number of years ago. because the footnotes were coming longer than the table, and it's really hard... Try and bring them back. Yeah, yeah, yeah. I appreciate the request. I'm not going to do it, because, you know, is a click-and-collect customer, a store customer, an online customer, clearly both, whether the stock for the collection is in the store already or in a distribution centre that we own or a supplier owns also will vary. So it's almost impossible to attribute it to one channel or another. But it's a meaningful proportion of the fulfillment choices that customers make online. And it's a significant proportion over store sales too. And it's growing by about 20%, so that's interesting. And I think it's really us catching up. So we've extended our digital range over the last three or four years quite considerably. The majority of those lines weren't available for collection in store, and we've now managed to have more of a one-stop shop, and customers have seen that and responded well. So it's... I don't mean to be boring, but it's an indicator of the fact that people like shopping across channels, and when the two come together, it's really interesting. Sure. Now, some of our shops opened up on Boxing Day to several hundred click and collect orders, which would have been an order of magnitude higher than they would have done the previous year or the year before that. At those sorts of volumes, we can start to introduce processes in the stores that we pick from store stock by department rather than by customer A, then customer B, then customer C, and that brings lots of productivity benefits. And as we bring out self-checkout and we reduce our labor hours on checkout, we can put labor into tasks like click and collect. But another example of where we'd move labor hours to would be areas like made-to-measure, which Karen mentioned, growing very strongly, strong double-digit growth in made-to-measure. and we've got specialist consultants now with a different uniform in many of our stores selling made-to-measure. So lots of opportunities.

Excellent. And Ireland, click and collect?

Well, the Irish business has a very old tech stack for digital which allows it to do reserve and collect, which some of you with long memories will remember we used to do. We'll keep that running until we've got our technology ready to serve Ireland. Okay, thank you.

Thanks. It's Anne Critchlow from Berenberg. Just as a follow-up on Click and Collect, do you have an idea in mind of the timescale that you might get 100% of eligible product available to Click and Collect? And then secondly, on Westfield, have you seen online sales growth react meaningfully to the Westfield store in the London area? And are you looking for more of these small urban concept stores? And then finally, if you could just talk a bit about the weather and let us know what an optimal year might look like.

I'll think about that one. Why don't I do the first and the third one and think about the answer to that? And maybe you could do the growth around Westfield. So I mean, click and collect, we aspire to get to all of the available range. One of the ways we do that now is that when we onboard a new supplier, we would expect them to be able to offer the service of click and collect from their stock into our stores. So over time, that will just grow and grow as a proportion. Yes, so we'll get there. But to all intents and purposes, I think we'll be at about 90% of eligible products will be available very shortly through Click and Collect.

On Westfield, we have only been trading the store for a couple of months now, so it's a bit early to be talking about the online halo, but we are really pleased with the fact that our customers are using Westfield as a total retail system. So what we can see is where customers come in and they buy using what we call MPOS systems, That is an online sale already. And Nick also referenced the fact that a lot of our Westfield customers are new customers to Dunelm, and we know that most of our customers like to shop both in-store and online. So I think that this is going to be an unfolding story, which we will update you on as we go.

Weather-wise, I mean, I don't want to sound like a farmer, I mean... We're better at keeping you warm than we are keeping you cool. So lots of our products are particularly designed for making your home feel cosy and warm. And obviously lots of our products have a function to them. 30 years ago, we'd have been showing you quilts, duvets of different fillings. And those higher weight products tend to have higher prices. So that's beneficial to us when the weather's cold.

Yeah, morning. Richard Sutter from Barclays. Question on the app, please. I think this is the first time you've mentioned it in a results statement. So can you give us some more detail on the plans there, please? I guess frequency is a bit lower than some companies with high app usage. So what do you think the benefits could be to you and your customers over time? Thank you.

Thanks, Richard. Yeah, we quite like not being an early adopter. I mean, we are late on an app, but we're happy to be late. The costs of developing an app are significantly lower than they were several years ago. I did make a comment a couple of years ago that we thought we had so much more to do to optimise our existing digital channels before diverting our energies and focus to other channels. I think we've now got to a level where it's appropriate for us to do that. What does it give us? It gives us... And the build's ongoing, and we're happy with how we're getting on with building it. What it gives us is a lower cost channel, which makes it more attractive to bring customers to it at an earlier stage in their shopping journey. So it particularly allows us as a product company to give inspiration and ideas for coordination earlier on in the customer journey than we would want to afford to do on our digital channel, where typically we're paying performance marketing to get customers to it. So it creates a different dynamic. And as a product company, we really, really love that. But it also does some quite interesting things at the other end of the funnel. So the idea that you can be in a store. We think maybe a quarter of customers in store will be using the app as they shop in the future. They can check out by themselves on the app. Not for launch, but that will be coming. They can look at product reviews more intuitively on the app than they can by scanning a QR code. They can see products that are not available in the store that are in the same family as the products they're looking at. So all those sorts of benefits... are coming, and it's exciting because the cost of acquisition, and it will drive frequency. So it's part of being a multi-category specialist. I think someone wrote that we finally got there on the app.

Hi. Grace Gilbert here from Jefferies. Two questions, if I may. The first is on your CapEx guidance, a little bit of an increase there. Is that a level that we can expect going forward? And second is around pricing, given the current inflationary backdrop. Are you happy with your pricing position, and do you find that customers or rather competitors are behaving rationally?

Thanks. Thanks.

Shall I pick up the CapEx one? So on CapEx, Grace, we are emphasising that we're a CapEx light company. and it is primarily property costs that go through CapEx, new stores and refits, and then every now and again if we need any expansion in distribution centres, and that will continue. It is just that, you know, we invest for growth, and this year we've found two really good opportunities for freehold retail property acquisitions here. in areas, I don't know if we've been looking at them for 25 years, but we've been looking in these locations for a long time because they're white space locations. The Yule one that we did in July in southeastern Surrey and the one that's still going through legals, which all we can say about at the moment is in Greater London. I still expect that the majority of new stores that we open are are going to be leasehold properties. But we just thought that it was important to invest in these two relatively unusual opportunities because of the growth potential that they will give us.

And on pricing, we start by looking at it through the value lens. So our propositions offer outstanding value to our customers, meaning you need to pay more to get the same quality elsewhere. And that's the prism which we look at pricing. So to the extent that there's changes in the market, then we can change our prices and we'll change our prices from time to time. But as we describe at length, when we go through good and better and best, our primary ways of thinking about price are through our range design and range structure. So Emily folding dining chairs, £15 folding dining chair, we introduced that last year. It's a new low price point on a new product in our range. So it's offering better value. It's not a price reduction because that product didn't exist before. Similarly, a higher priced Turkish cotton towel at the top of our range will introduce a pricing effect. So most of the pricing you see in our business will be through how we design our ranges. And that's why we like foresight. That's why we look at forex over a two-year blended period so we have knowledge of what's coming down the lines. And that's why changes like the national insurance change, which are at short notice, are harder for us to adapt to as a business because we like to pull long-term considered levers across the breadth of our range. The market is very rational, and there's not a lot of volume elasticity around price in homewares. I expect that that's why we emphasise that our growth is volume-driven, and we think that is the sustainable route to driving share growth and sales growth in homewares and furniture. Still got a few more hands up. Yeah, thank you.

Good morning. It's Charlie from HSBC. Could you just talk about how you think about VOREX in Ireland versus how you think about VOREX elsewhere?

I mean, I'll just quickly say, clearly we will be thinking about it. It's very, very immaterial for us. So it is just something that we will manage going forward.

Hi, David Hughes at SureCap. A couple from me, please. First of all, you mentioned the NI headwind that's coming up. You had about £9 million of inflation. A lot of that was labour. How much of that do you kind of expect to annualise through to the full year? And how much extra from the kind of national insurance increase in April are you looking to kind of manage? And then secondly, are you able to just give any colour on home performance versus furniture? And if you're seeing any kind of shift in patterns there? Thanks. Thanks, David.

Do you want to do the cost? Nick has said we actually prefer certainty when it comes to managing our costs, but the national insurance rise isn't the only sudden issue that we've had to deal with. We've dealt with Red Sea issues and we've dealt with the freight crisis. And, you know, we are saying that we are comfortable with our PBT guidance that's going to be in line with consensus. So where we have to deal with things, we are just going to have to deal with them because there's actually quite a lot of levers that we can pull and that we've learned to pull over time. So in actual fact, the combination of national living wage and NIC contribution increase is actually in total not so dissimilar to the kind of wage inflation that we've seen for a good couple of years now. We do have some optionality around how we manage things like national living wage. We are still paying a little bit ahead of the national living wage. And as you can perhaps see on our waterfall of how we're managing the operating costs, whilst we've guided to cost inflation, of 3% to 4% in this financial year, a lot of which, as you point out, is hourly wage rate inflation. We actually ended the first half a tad below the bottom end of that guidance. And that's actually because of the efforts that we were making on non-wage costs, what we call our non-stock costs. So that approach will help us to deal with what we see in the second half of the year and beyond. And when we think about the beyond, then we're managing this combination of what I would call short-term, tactical, operational issues. A lot of which don't require any investment, so that means you get a very fast payback on them, combined with some things that are a bit longer term. I mean, our long term isn't other people's long term necessarily, because Nick talked about self-serve checkouts, which pay back faster. in less than three years and give us the opportunity to take people off checkouts and deploy them into other customer-focused parts of the business. And that's really just the kinds of things that we do just in the operating cost base. We also have levers that we can pull and have pulled when we think about our cost of goods sold. So we're balancing everything right through the P&L, whether that's considering our bill of materials and the kinds of embellishments we might want on goods. cotton towels to continuing to innovate around packaging so it literally is a series of things no one silver bullet will solve for the cost headwinds that we need to face into.

I think for those retailers who are experiencing growth, it's particularly challenging. So growth gives us lots of additional benefits and lots of different levers, as Karen's described, in terms of leverage and reconfiguring our operations and redeploying colleagues, for example, in stores or in supply chain. Furniture is still less than 10% of our sales, growing double digit. So we're really pleased with what we're seeing in some of the categories within furniture. And it's a function of the fact we're a price challenger in furniture. Our average item value in furniture is only £100. And some of our collections in terms of product capabilities have really come on a lot. We've got quick delivery lead times. We're investing in UK manufacturing, ourselves from Made to Measure and three partners in furniture. So we're feeling excited about furniture. I think we're out of questions. Oh, Ben, come on in.

Hi there. Just a sort of technical question, really, and it's probably due to where you've measured the active customers from in the last 12 months, but it looks as if the implied sales for customers sort of come off a little bit. It may be negative. Obviously, you've alluded to volume growth, so that would suggest that it's down to pricing or mix. I'm wondering if you have any sort of thoughts or... where that's come in?

Yeah, happy to describe that. So customer growth 4.3% is a 12-month number, so you can't directly compare it to the H1 growth rates. So we're really pleased with that. It's strong and sustained growth. It's very broad. Frequency, which we haven't disclosed, has also grown slightly, so low single-digit growth in frequency. And so, therefore, the solve for that is that average order values are slightly down year on year. to reflecting the fact that our growth is mostly volume-driven. And then why are average order values down? There isn't one overarching trend. It's this series of choices consumers are making across different categories, across different tiers, across different shopping missions in different months of the year. And actual pricing is a very, very small, immaterial part of that. It's examples like the Emily folding chair that people are buying because they want to buy some lower-priced products for guests at Christmas rather than investing in a new set of dining room furniture, for example. It's when it rains, we sell lots of doormats. When it's cold, we sell more rugs. So it's all those things playing through. There isn't one particular trend. I mean, it's the breadth of our choice coming into play and across the system, across the brand, the fact that we are giving people things that they can buy within our offer, which really excites us. Thank you. I think we've run out of questions in the room. I know we've got a couple of people online. Do we have any questions from the online audience?

Thank you, sir. Ladies and gentlemen that have dialed in, if you do wish to ask a question, please press star one on your telephone keypad. So that is star one for questions. Give me just a moment to signal. We do not appear to have any questions coming in, sir.

Okay, thank you. There was a time when all the questions were online. I remember that well. So thank you so much for joining us in the room. Thank you for joining online. I really appreciate your interest in the company and your questions. We've covered all sorts of different things. As a business, as you know, we are very active. We've got loads of things that we're excited about doing and we're investing. And there's some headwinds in the consumer environment, but we are very confident in our plans and our future progression. Thank you.