Today, I’m looking at two stocks that have been treated very differently by the Covid-19 pandemic. One is Dunelm Group (LSE: DNLM). Although it did drop sharply at the start of the stock market crash, the Dunelm share price recovered quickly and it’s now up 30% so far this year.
Hot on the heels of final results released in September, the home furnishings retailer has now given us a first quarter update. Full-year sales had dipped a little, by 3.9%, and EPS fell 14%. But at 27 June, Dunelm had net cash of £45.5m on the books. That was partly due to £80m of exceptional working capital inflows. But it’s a big improvement on the firm’s net debt of £25.3m a year previously.
Following on from that, in the 13 weeks to 26 September, sales figures have shown Dunlem’s resilience in the face of the stock market crash. Total sales are up 36.7% from the first quarter last year to £359.1m. Digital sales grew as a proportion of the mix by 12.1 percentage points to 29.7%.
Dunelm’s gross margin improved too, by 100bps, due to strong demand leading to a lower proportion of discounted sales. We hear the firm’s cash balance has been “flattered by the timing of the September month end payment run of approximately £60m.” But with net cash of £175.2m, I doubt shareholders are complaining.
I’ve mentioned the key word once already, resilience. And that really is what’s making the difference between successful companies and strugglers now. I rate Dunelm as what billionaire investor Warren Buffett might describe as ‘a wonderful company at a fair price’. Some, mind, might see the valuation as a bit stretched.
Stock market crash victim
At the other end of the scale, we have Marston’s (LSE: MARS), whose shares are down 67% in the stock market crash. With pubs closed across the country for months, and restrictions being reinforced after having been relaxed, business is hurting.
Marston’s is due to release full-year results on 10 December. And, on Thursday, we got a trading update. Overall total sales for the year are down 30% on last year to £821m. And total pub sales fell 34% to £515m. The company had reopened around 99% of its pubs, but where the second coronavirus wave will take us is yet to be seen.
Net borrowings at 3 October were £70m below last year’s level, at £1,329m. That reflects pub disposals and government support, but it suggests the company is in a sufficiently strong state of liquidity. There should be around £230m coming from the transfer of Marston’s Beer Company to the firm’s joint venture with Carlsberg too.
Sadly, recently escalating restrictions on the pub trade are resulting in redundancy for more than 2,000 furloughed workers. And there are clearly some tough months ahead for Marston’s and the rest of the sector, with no end in sight yet for the stock market crash.
A recovery investment? I think Marston’s will survive just fine. But even without a pandemic, I’ve never been tempted by the pub business. Competition is fierce, differentiation is almost non-existent. And I just don’t see any wonderful companies in the sector.