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Dunelm beats British retail gloom with online push

By Yadarisa Shabong and Noor Zainab Hussain

(Reuters) - British homewares retailer Dunelm expects to top analyst profit forecasts this year, it said on Wednesday after reporting a higher-than-expected sales increase due to another surge in online orders and higher sales from its stores.

Shares in the company, which has struggled through a costly integration of online platform Worldstores since 2016, rose more than 6 percent to 919 pence in early trade, just short of a 2-1/2 year high set last week.

Like many of its bricks-and-mortar peers, Dunelm has been expanding its online business as price-conscious Britons log more hours looking for bargains online. But it also managed to pull shoppers into its stores in the quarter.

Total comparable sales rose 12.5 percent in the third quarter through March, with sales up 9.8 percent at its more than 170 outlets selling a wide range of home furnishings including bedding and kitchen equipment.

The retailer, which launched its "fully shoppable" website 14 years ago, said like-for-like online sales in the third quarter jumped 32.1 percent.

Analysts at Stifel said total sales were 6.6 percent ahead of expectations, with stronger than expected cash generation paving the way to possible returns to shareholders in the financial year 2020.

Analyst John Stevenson at Peel Hunt said: "It has been a tough year for the retail sector in terms of share price performance ... In a more confident environment you can see the right retailers performing well and Dunelm is in that camp of the right retailer."

With Britain no closer to agreeing an exit deal with the European Union, Dunelm pointed to risks from political and economic uncertainty as it entered the final quarter of its financial year.

Analysts, however, say Dunelm has benefited from its investment in online infrastructure as well as its cheaper out-of-town shopping park locations.

Margins rose about 90 basis points in the third quarter as it completed the closure of the Worldstores businesses and continued to rein in other costs.

"They are winning market share, they are growing online sales, they are growing store sales, they've got a very low rent-to-sale ratio," said Peel Hunt's Stevenson.

"They're not being affected by the sector headwinds as much as other retailers."

(Reporting by Yadarisa Shabong and Noor Zainab Hussain in Bengaluru; Editing by Patrick Graham and David Holmes)