Dunelm Group Stock

Good morning. Thank you all so much for battling the rain and making it here. We really appreciate you being here. For those of you who I haven't met, my name is Clo Moriarty, and I'm our CEO here at Dunelm. Now, I joined this business almost a year ago, and I knew from the outside in, there were opportunities. But it's been really encouraging over the last 12 months to really see that not only do those opportunities exist, but actually, there's so much more.

So we're really excited actually to bring that to life. And I'll do that for the first 30 minutes or so before I hand over to Karen Witts, who I know you all know, and -- as our CFO. We then have a number of breakouts. So we brought along a number of members of our exec to bring the plan to life. So we'll have Faye Atkins. So Faye is our Chief Commercial Officer. And she's been in our business for 17 years, always in product, always in commercial, so no better person to be able to bring that to life.

Then we have Laura Harricks. Laura Harricks joined us in February of this year as our Chief Customer Officer, having held that role in a number of other U.K. retailers for the last number of years. And then we have John Gahagan, who is our CTIO. And John joined actually our exec -- straight into the exec 5 years ago, having played a role across a number of global retailers. So we're collectively really looking forward to sharing the plan.

But let's get going. Because Dunelm is a special business with a tremendous growth story. It has been, it is and it will continue to be. Because we are the market leader in a GBP 25 billion U.K. homeware fragmented market. And in spite of that position, we still only captured a fraction of the spend and a fraction of our total customer share of wallet for our most loyal customers. So we're really ambitious about seizing that opportunity by sharpening our specialist proposition, by improving our omnichannel experience and by simplifying our business.

And by doing that, we can see a line of sight to mid- to high single-digit sustainable growth. We can see how we can take out GBP 100 million of our least productive cost and reinvest that into capability, into simplification and into automation, and doing that while continuing to generate strong cash. Now it is a bounded but self-funded investment. And it is all in service of making this business materially larger, materially more productive and more valuable for its customers, its colleagues, its suppliers and of course, its shareholders.

Now we're going to go through growth in existing stores. We're going to grow in new stores, and we're going to grow in digital, both in and out of our ecosystem. We're going to grow through our amazing product, the design and the quality, and we're going to grow through technology advancements. And as a result, we believe we can be bigger, bolder and better.

Now in -- let me jump here. In February, when we last caught up, I talked about the key strengths in our business. And the opportunity was clear. We have universal appeal. We have loyal customers. We have outstanding products. We've got physical and digital reach, great colleagues and platforms and strong customer satisfaction. But all of those strengths demonstrate even further opportunities because still 85% of the U.K. population doesn't shop with us frequently yet.

We hold 20% share of our most loyal customers' wallet, which means we still have 80% to go for. And yet, we have amazing products, but our in-depth analysis tells us that we do have a tail. And by unlocking that tail, we can create an additional up to 25% more space in some of our stores. There is white space for us. We have identified 100 locations where we know Dunelm can thrive without cannibalization. And whilst we have made really strong inroads in the e-commerce space, we are yet to unlock the full opportunity associated with digital experiences.

And this business is ripe for simplification and much more process orientation. And as a result, we can take GBP 100 million of unproductive cost, right, and reinvest that for the growth. And we can do all of this while remaining customer obsessed. But the time to move is now, right? Our growth rate over the last number of years has slowed. We recognize that. Competition continues to be intense and the macroeconomic challenges continue. At the same time, customer behavior continues to change and it ever will.

But the role of digital is ever more important with inspiration, with conversion, with understanding the role of curation. AI tools and data tools are critically important now for customers and very much will be in the future. And we know that getting the value equation right for our customers so that when they're spending their hard earned money, they're spending it well is key. But in all of that context, we also need to remember that Dunelm is a brilliant business. It's a resilient business with a strong balance sheet and even stronger proposition.

And as a result, we believe we are better placed than many of the others to stand up to these type of pressures. And therein lies the opportunity. In addition, our customer insights have never been sharper, right? Put simply, we know our customers better now. We can target them more effectively, and we can move faster. And that's why we're choosing to invest now. This isn't a question about whether Dunelm can continue to perform. Of course, it can. This is a question about how much of the ambition we are willing to capture because we believe if we don't move now, we leave the door ajar for others to potentially enter that space. And we know we are better placed to serve our customers.

So the fundamental idea behind this plan is winning the hearts and homes of our customers. And mathematically, knowing how to grow the business is one thing, but really understanding the emotional connection with customers, understanding their hopes, their dreams, their passions, their designs, that's how we become their specialist. And by winning their hearts and winning the privilege of playing a greater role in their homes, that's how we, as a business win.

And this is all about layering to deliver this big ambition. It is about more reach, digitally and physically. It is about more spend through our amazing product catalog and enhanced experiences. It's about more missions. We already have breadth and depth in categories. The job of work now is to connect that across journeys. And we're going to have more loyal customers. We already have millions of customers in our ecosystem. We simply want to make them more loyal to us. And we're going to do that by being more productive so we can move faster and be more efficient.

And as we do this, we believe we can increase our customer loyalty and spend through repeat visits and share of wallet. We believe we can return to mid- to high single-digit growth, and that's through like-for-like store-enabled growth and through digital acceleration. And we can see how we can deliver strong returns and cash generation with an adjusted PBT margin of circa 11% and a very strong ROCE of 30%.

But if the idea behind this plan is all about customers, let's just spend a little bit of time understanding our customers because we really do and we continue to learn. So what we're looking at here on the right-hand side is our total customer base and the share of customers by segment. The next bar shows our share of sales equally by segment.

And I'm going to start from bottom up, all right, because our biggest customer group are our One and done. Now this group of customers, they care about relevance and accessibility, and we can do that. So when they spearfish, they hook us. They really care about events and campaigns, and we have 12 really strong campaigns every year to be able to address this group.

We then have our Now and thens. Now our now and then shop with us about 3 times a year, they totally get who we are, right? But whilst they dabble in categories like cook and dine, what they really cross the threshold for, what they really click through online for is bedding. And as a business, we know how to do bedding.

We then have our Big debuts. Our Big debuts are ripe for conversion and the next best message because this is a group that has typically shopped with us for the first time over the last year, but they've shopped big and they've shopped across category. So the customer relationship management involved here will continue to attract and convert this group.

Now it's going to start to get really interesting because we've got 20% of our customers that make up 60% of our sales. And we start with our Little and oftens. Our Little and often shop with us 9 times a year. They shop with us in store, they shop with us online, they shop across category. They eat and drink in Pausa. They know how to shop Dunelm. The interesting fact about this cohort is their typical average basket is the item in the basket is lower than the average customer. But they are very comfortable building baskets and shopping with us frequently. So they are the 2 metrics that we can address through our walkway, through our flow and through our inspiration.

We then have our Big dippers. Now they don't shop with us that often, 3 times a year. But when they shop, they shop big. They shop quilts, they shop pillows, they shop rugs, they shop furniture, they shop curtains. They really understand the breadth of the opportunity. So the job of work here is to ensure that we are really clear in our product descriptions, in our inspiration, in our curation because that matters to this group of customers.

And last but definitely not least, we have our Dunelm devotees. 3% of our customer base, 20% of our sales, right? This group of customers shop with us all the time. They shop across category. They love us, we love them, and we are going to make sure that we recognize and reward this cohort to keep them coming back time and time again.

Now if you were to cut this data across all the regions in the U.K., you'd actually get a broadly similar picture. And that makes sense, right, because we have universal appeal. But when you look at the different behaviors across these segments, that's when you start to understand where you can create the value. Because we've used this to be able to understand the role of the categories, the role that channels can play and how our data can delight these customers and create value for us.

And that's how we get to our 3 growth drivers: becoming the homeware specialist with something for everyone, delivering seamless omnichannel experiences that our customers love and of course, transforming our capabilities so we can sustain this growth. So if we start with becoming the homeware specialist with something for everyone. What we are going to do is ensure that we really focus on us as a specialist. We're going to simplify our range. We're going to make it more inspiring. We're going to make it more productive.

Our customers already trust us across our product categories. We need to ensure that we build that trust across the entire mission. And we're going to do that in 3 ways: ranging to win, building trust on affordability and maximizing our product brands. So ranging to win is not about more for the sake of more. It is about the right products at the right prices through the right channels to enable our customers to complete their overall mission. When we started to look at the analysis behind the use of our space and our SKU Paretos, I don't know if any of you have spent a lot of time walking around our Make & Mend department. Anyone? Anyone?

But if you do walk around our Make & Mend department, you'll see that it's really high density when it comes to our SKUs, and they are really unproductive, right? Or equally, if you walk one of our sub-cats, take cushions, for example, it's a phenomenal range, but the complexity in a very small space within our shops does oftentimes make it more difficult to shop, more difficult to create those coordinated solutions or to generate the depth of fill.

Now you can see that when you walk our shops. You can see it when you shop online, but you can also see it in all of the in-depth analysis. And as a result, we will do this carefully, but we can see a route in a number of our stores of freeing up to 25% of space, still ensuring you have the endless aisle experience online, supported by Home Delivery and Click & Collect, but using that space for more productive categories, more destination categories and to showcase more of our home spaces that you can kind of see here in the room.

We believe we have a very strong value equation. We don't always get recognized for such, and that's where we're building trust on affordability. Because this plan doesn't involve a huge investment across the board in price points. Instead, it is about ensuring we've got the best, good, better and best architecture. The appropriate packaging, the right pricing and affordability tools and critically ensuring that we always have our products available, whether it's in-store or online.

No homeware specialist can sell fresh air, and we're not going to try starting that, all right? Now we have got going on this. So you can see the pans towards the back of the room or here on the screen. But when we looked at that category, we looked at the total range and what products should be in that range. We looked at the price points. We changed the packaging and we changed the flow. And as a result, over the course of the year, we have seen a 9 percentage point outperformance in that category versus our other categories.

We take another example, take plain dye bedding in our St. Albans refit. We changed the flow and merchandising associated with our good, better, best and colorways. And as a result, we're seeing double-digit outperformance in that category. So we're using all of these examples to understand what is it that we need to change in our proposition and what we can scale. And Faye, when she stands on the stage a little bit later on, is definitely going to bring this and more of these examples to life.

Now before I move off this slide, I just want to draw your attention to our more focused trading calendar. Our biannual sales have worked really effectively for us for a number of years, but our customers no longer consistently shop in that way. So we are going to adapt our trading calendar slightly to ensure we are showing up and eventing with relevance and full-price products when our customers are expecting it. As you would expect, we will manage our margin over the course of the year, so we don't see dilution here.

And lastly, we have maximizing our brand. And while this says product brands, we see a real route to maximizing our retail brand as Dunelm, which Laura can touch on, and maximizing our product brand. Currently, 75% of our products are sold through our own brands. We can see a route to driving that to 90% to simplify the offer to improve our credentials and to really establish ourselves as that homeware specialist. So as you connect all of these things together, it is a sales and margin play, right? But in the spirit of our more, more and more, this is more spend, more missions delivered more productively.

Okay. So number two is delivering seamless omnichannel experiences. Our customers already shop with us in-store and online, right? And our Dunelm devotees, you know that most loyal group, they have the highest propensity to be an omnichannel shopper. And that's great because our omnichannel shoppers have our highest retention rate at 72%. That is 15 percentage points higher than a store-only customer and circa 30 percentage points higher than a web customer.

So the opportunity here is to connect those omnichannel experiences, so we design as one. And we'll do it by extending our reach physically and digitally. We will do it by optimizing our existing estate, that's our stores and our platforms and obviously creating those connected experiences. The design principle though, behind this is designed first for omnichannel and then for individual channels thereafter.

So let's start with extending our reach. We have identified those 100 locations where we know Dunelm can thrive. And we can see a route to opening up to 10 of those each year over the course of the plan. Now each of those stores when they're running contribute to about 0.2 percentage points of our growth. Clearly, that is subject to the location, the maturity, the format. But broadly, that's what we're looking at.

As we open stores, we will continue to maintain our discipline. If you look here, this is our Kingston store, which we opened early in the summer. Now that was at the height of one of the heat waves, one of the many heat waves that we had. So it was greater than 30-degree heat in the morning, and we still had a long line outside that shop. And that shop is already our top-performing transaction shop across the estate. So we know how to pick these locations.

And at the same time as getting the physical locations right, we are really focused on the next channel for growth through digital for generative engine optimization. We, as a business, have performed very well in the SEO space because of our strong data quality. But the need for data in a GEO world is immense. And that is why we are investing in product information. It is why we're investing in our digital assets, in our order management system and our overall customer relationship management because this is a space that we do expect will grow.

Now Laura is going to talk a lot more about that in her breakout. So do feel to ask her all of the very, very technical questions, she'd be delighted to answer. But, she'll also touch on our advent into the social space because we are not active enough in social as a business. So whether that is TikTok or whether that is YouTube, we are truly committed to showing up where our customers are. But we've also got to optimize our existing estate.

Now for those of you who know me, you know that I like to be out and about, right? I love to be in our shops, in our operation, connecting the data that we see centrally with the reality of what customers and colleagues experience. So I've been to well over 150 of our shops, some 80% of our estate. And candidly, some of our stores simply aren't good enough. But 25% of our stores are more tired than they should be. And as a result, there is value leakage when we should be generating strong sales.

We have a program to be able to conduct these renewals. So we are adapting it and accelerating it. And in FY '27, we expect to renew 30 of our stores and to complete the program the following 12 months with a further 20 stores. At the same time, we will continue to conduct a number of full refit, just like our St. Albans store, where we bring some of the latest concepts and thinking to accelerate our journey. And St. Albans, in particular, is already seeing in spite of only opening in the summer, a high single-digit growth.

At the same time of investing in our physical, it's the same logic. We will invest in our digital, ensuring that we have the right inspiration, the right basket build, correct bundles and using the best and of all of the data-led and AI technology. And again, Laura can bring this to life in about an hour's time.

Finally, on this, we are creating connected customer experiences. Those Dunelm devotees that I talk about, they understand how to complete missions. They already get it. And as a result, they spend 6x more with us versus an average customer. But we need to work harder to be able to create these home spaces. So a customer when they come into our physical environment, knows how to complete their mission. So moving from a single item pick to completing a full journey and a full mission.

We also believe that it is our role as a specialist to help our customers along this way and here in enters our app. It is a little known fact, but we were one of the first retailers in the U.K. to embed AI search within our digital ecosystem. We were also, earlier this summer, one of the first retailers in Europe, again, working with Google to embed conversational commerce inside our ecosystem, specifically in the app. And the app is working really well for us.

So on average, a customer who shops with the app spends 40% more with us on checkout versus a non-app customer. They are more frequent and they have higher conversion. So the value equation in this space is really clear. More visits and eyeballs, stronger conversion, bigger basket build and more repeat customers or in the spirit of our more, more and more, you have more physical and digital reach, you have more spend, you have more missions, and we've got more loyal customers as a result.

And our third driver is all about transforming our capabilities because we need to be nimble, we need to be faster in order to be able to capture this opportunity. And as a result, we have to rightsize our organization. We need to ensure we've got the right people, process, systems and data to be able to fuel our future growth. So we have looked at our organizational structure. We've launched a new process and productivity initiative, and we are advancing our tech and ensuring that we eke every ounce of value out of that technology. So over the summer, we announced some restructuring. Now that resulted in a net 8% out of central salaried headcount.

And while cost was definitely a factor here, the main focus was on the productivity and efficiency of our most critical resource, our people. But we also took this opportunity to invest in transformation and change, to drive the pace, to invest in a new division for data and analytics to ensure we move away from data review to data decisioning and critically automated data decisioning, and to consolidate our customer function, bringing together our journeys, our digital, our brand and, of course, our marketing because, again, if we are going to be customer first, we have to show up in a customer-first way.

This, together with optimizing our process and productivity does contribute significantly to our GBP 100 million of unproductive cost out. And Karen, when she steps on to the stage momentarily, is going to go into a lot more detail. But while cost is a really important element of this, there are other facets of value. So again, when I've done this before, you look at taking a revamped store operating model. You then combine it with the best of tech, which in our business is our self-checkout, our rescheduling, our camera technology and RFID.

And not only do you take cost out of the business as a result, you improve the customer experience and you improve the colleague experience. Or in the example here where we have our made to measure, we relooked at the overall process of how we deliver made to measure. And then we layered in the Salesforce technology, which resulted in a 30% reduction in lead times, which, of course, translates to an availability opportunity, which translates to a sales opportunity and repeat customers.

So again, for those of you who know me well, you will know I feel really passionately about combining the power of people and tech and how if you combine them in the right way, you can generate significant value. And John is going to bring a lot more of that to life in the breakout. But in a nutshell, we see some investment required in some of our tech foundations.

Of course, we are going to leverage the best of AI. We will go to fewer and bigger suppliers to make ourselves more efficient and to ensure we're benefiting the most. And as our systems and as our platforms reach end of life, we will gracefully transition to fewer, more connected platforms. And that's where we see the value.

Let's be very honest. We aren't always at the forefront of tech. Now I know my predecessor used to mention that the Church of England got to contactless before we did, true. And we're not massively proud that it took us until February 2026 to have a fully functioning app for the market. But the benefit is, you are then operating on the latest tech. You are then operating on modern platforms, which makes it fundamentally easier to develop some.

And that means that we can spend more of our time on -- looking at how we reimagine the ERP, how we unlock automated fulfillment and what we need to do in our customer architecture and our merchandising and ranging. It's never tech for the sake of tech. It is always tech to drive better decisions, faster decisions, more cost-effective execution and more personalized journeys.

So there's a lot going on, right? We recognize that. We also recognize that in strategy, it's so important to be focused. So the way we are thinking about focus is the sequencing of this plan, right? So in FY '27, I'll bring that to life, we are looking at what are the areas we will have laid the foundations and groundwork for, where will we have piloted, tested and learned, and where will we have delivered in-year value.

So for this year, we'll have made significant progress on understanding our end state personalization and loyalty journey. We will have landed and completed the discovery for a number of our key tech enablers, specifically across the towers of customer, commercial and digital, alongside the next generation of our app when we think about how you connect customers and colleagues. We'll have completed all of our discovery work on the distribution automation opportunities required for all of the growth that is to come in the future. And of course, we'll have invested in our team's capabilities to ensure that we collectively are future fit.

In terms of test and learn, we will have tested in rigor our home spaces proposition, starting the bedroom and then moving through across all channels. We'll have tested our new store formats, whether that is our smaller stores or our larger stores to identify which of the elements we should be rolling back and what we should be scaling forward. We'll have tested our affordability and tracking tools. And of course, we will have rigorous testing in social commerce, in conversational commerce and GEO-led customer acquisition.

And in terms of delivery, we will have delivered our customer targeting for our -- our key segments. We'll have landed up to 10 new stores and 30 renewals, moving from value leakage to value creation. We'll have improved our supply chain resilience. So over the next number of years, we are really set to be able to deliver all of that volume. And critically, we have made huge inroads into our productivity and process improvements so that we can take that unproductive cost out and we can refuel it in the growth of our business.

So the fundamentals of this plan are centered all around our strengths, right? Our market leadership position, our highly cash-generative business, our disciplined returns and our clear capital allocations model. We have a self-funded plan. It is deliberately bounded and it is deliberately concentrated in 2 years, linked to specific initiatives and outcomes. And over the course of this period, we feel we'll be well on our way to winning the hearts and homes of our customers and starting to see increased customer loyalty and spend, a return to mid- to high single-digit growth, and we will be delivering strong returns and cash generation.

This is not about us changing the fundamentals of Dunelm. It's us strengthening them and ensuring that we can accelerate this growth even further. This is not about us changing the discipline in our business. It is, though, about us moving our ambition. So when I shared in February that our customers said to me, "Oh, Dunelm, it's actually very good." We now believe that we have a plan, which over time for our customers, our colleagues, our suppliers and our shareholders, we will be really confident saying, "Dunelm, it's always very good," because we will be bigger, we will be better and we will be bolder. And I promise you, we're already going.

So thank you for listening. I'm going to hand over to Karen now, who's going to take us through the financial rigor of the plan. Karen, over to you.

Well, good morning, everyone. I'm Karen, and I've been CFO at Dunelm for more than 4 years now. Now that you've heard the strategic detail of our plan, I'd like to take you through what this means from a financial perspective. Clo has set out the reasons for acting now. We are a financially robust company. We are highly profitable. We have a consistent track record of growth and returns and a great set of assets to leverage. However, we also recognize that our growth is slowing. Our sales are still growing in a challenging market, but the growth has recently been less than mid-single digit and with less growth coming from market share gains than we are happy with.

Operating in a cost inflationary environment is now the norm. Labor cost inflation has been a particular headwind with total employee costs increasing by about GBP 85 million between FY '22 and FY '26. That's a CAGR of around 8%. Whilst wage inflation may be moderating and whilst we consistently deliver efficiency improvements and productivity gains, the combination of inflation and net investment after those productivity gains has meant that operating leverage has been used as an offset, leading to limited profit growth.

Now we have plans in place to address this to take advantage of the significant opportunity that Clo has described to reach and engage more customers and to create sustainable operating leverage from a new phase of higher top line growth. So the financial fundamentals of our business are good. A very strong return on capital employed is one of our relatively uncelebrated assets. Our ROCE of more than 30% sits high for our sector, where we believe the average is more like 10%.

And whilst not always linear in its progress, it has remained consistently strong through investment cycles. For example, when we've increased distribution capacity and when we've invested in freehold stores. This resilience has been helped by our disciplined approach to cost and investment management. Our PBT margin is similarly strong. Much of our investment runs through our P&L, and we use our operating leverage to help to cover it.

We are still relatively CapEx light and a highly cash-generative business model, which allows us to invest in attractive opportunities to grow our business. We have a strong and efficient balance sheet and a track record of returning cash to shareholders, and we've returned GBP 1.7 billion over the last 20 years. We have now built a 3-year plan to accelerate growth.

We're executing on a plan that capitalizes on our strong fundamentals and the great assets that we already have in our business. Over the next 3 years and with further to come beyond, we will deliver a self-funded growth plan to build a bigger, better and bolder Dunelm. The investment required to deliver this plan will be a combination of recurring spend, non-recurring spend, which we will show as adjusting items and incremental CapEx, all funded from cash flow generation and a Save to Invest plan.

So that means in terms of sales, moving from lower than mid-single-digit sales growth to mid- to high single-digit sales growth. We will grow like-for-like store-enabled sales, and we'll continue to grow digital sales by reaching more customers who will spend more with us through more shopping missions and who will become and remain more loyal customers. We intend to open up to 10 new stores per year, and we can see about 100 attractive locations, which would fill white space with limited cannibalization risk.

In terms of profit, to support our plan, we will Save to Invest. By FY '29, we will have removed about GBP 100 million of our least productive costs from our current base, and we will have reinvested a similar amount over that same time frame. Reinvestment will be in our store estate, in capability, in technology and in simplification and automation to improve effectiveness at a lower cost to serve with better customer satisfaction.

We also expect to fund some activity that will not be recurring. In particular, we need to invest in some foundational systems to provide better platforms for future growth, and John will talk about this in more detail. We expect this nonrecurring spend to total around GBP 30 million to GBP 40 million invested over the next 2 years. Over the next 3 years, as we take cost out and the returns on our reinvestment start to build, we will still deliver an attractive, adjusted operating margin of around 11% with expansion after that.

In terms of capital allocation, over the next 3 years, we will use our existing policy to prioritize investment for growth. Funded through free cash flow, we will generate the means to invest an incremental GBP 125 million of CapEx, means above our historic run rate in new stores, in refreshing tired stores and in continued investment in technology to modernize, simplify and to automate.

Whilst our approach to capital allocation will focus on investment for growth, we will continue to pay a growing ordinary dividend. We will maintain our target net debt-to-EBITDA ratio at 0.2 to 0.6x, operating with low levels of debt and any surplus remaining cash will be distributed to shareholders.

And finally, in terms of returns, we will grow EPS over the plan period. We will maintain an efficient balance sheet, and we will approach investments with discipline, applying a rigorous approach to returns, which will keep our ROCE high at around 30% through this investment phase. We intend to return to mid- to high single-digit sales growth by FY '29. Increased sales over the next 3 years will come from an improved omnichannel experience and from optimizing our homeware specialist credentials, and Faye and Laura will help to bring our plans to life.

In FY '26, we were disappointed by our low number of store openings. So over the next 3 years, we will focus on opening up to 10 new stores per annum in attractive white space locations. Our store-enabled like-for-like sales will be revitalized to a sustainable position of growth. Store-enabled sales include store fulfilled Click & Collect and store-assisted tablet-based sales. These grew modestly in FY '26, but sales through store checkouts alone declined. So we have plans to invest in renewing underperforming stores that don't currently provide the environment or the experience that our customers deserve.

And by removing our least efficient SKUs, we can create more space in store for our most popular lines and far more inspiration. And we will continue to deliver our historic high levels of digital growth, the definition of which is unchanged and includes Home Delivery sales, Click & Collect and in-store tablet sales. We will continue to get to know our customers more deeply, and we will use technology to make shopping with us easier, more relevant and more repeatable.

As we engage more customers online and on app and attract a higher share of wallet from customers, we will retain our customary gross margin discipline. Capturing this growth opportunity does require investment. This investment will be funded by the cash generated from our operations and from structural cost savings. The top left arrow in the diagram shows that by the end of FY '29, we will have invested around GBP 100 million in capability, process and automation, fully funded by GBP 100 million Save to Invest program that's shown in the arrow below.

We will also invest around GBP 30 million to GBP 40 million in total over the next 2 years in nonrecurring areas, including foundational infrastructure, and we will refer to this spend as adjusting items. Our CapEx will step up over the next 3 years when we expect to invest an incremental GBP 125 million, primarily in stores and distribution. The nonrecurring investment and the incremental CapEx will be funded through our ongoing cash-generative model, focusing capital allocation on investing in the business for growth.

Our Save to Invest plan is a productivity and simplification program designed to make Dunelm more efficient, more scalable and therefore, better positioned for future growth. So let's first look at how we will take cost out. We will remove about GBP 100 million of our least productive costs from the business over the next 3 years so that we can reinvest a similar amount in capability and process improvements to make us more effective. We're approaching this work through 4 interconnected and phased streams of work.

So moving from the top down, our areas of focus are, Organizational design & cost removal, End-to-end process reengineering, Operating model optimization and Range efficiency & rationalization. Together, these initiatives will help us remove structural cost. We will then reinvest in the areas that will create a more effective organization and deliver most to our customers.

So starting with the green block, we've already started to simplify elements of our organization and reduce costs across the business. We recently announced plans, which removed about 8% of our gross salaried headcount with, of course, an associated cost, which we're including as an adjusted item. Changes to our organizational design and other targeted third-party cost removal will deliver annualized savings of around GBP 40 million by FY '29. We will also remove costs by reviewing processes end-to-end and designing them to be more effective.

Traditionally, in a functionally designed organization, we've solved for functional problems and made functional improvements. And now, we're redesigning how work flows across the entire business. We're establishing a common end-to-end process architecture for Dunelm, covering product life cycle management, inventory management, stock flow, merchandising, trade operations, fulfillment and returns. We see opportunities to remove manual activity to reduce process complexity, improve data quality, simplify and speed up decision-making and increase automation. And we expect this work to deliver annualized benefits of around GBP 35 million by FY '29.

The blue blocks are focused on where we already have a strong track record of continuous improvement, particularly across our stores and supply chain. We will build on this, and we will deploy targeted technology to unlock efficiency. This will include the deployment of RFID, which is currently in early rollout to streamline store and logistics processes and improve stock accuracy and availability. We will also introduce better workforce management tools to improve labor deployment and scheduling. These initiatives are expected to deliver about GBP 15 million of annualized operating model benefits by the end of FY '29.

And moving on to the bottom layer, customers expect choice from Dunelm, but complexity comes at a cost. And as you'll hear from Faye, our focus is not on reducing that feeling of choice, it's on ensuring that every product earns its place in the range and that so-called complexity exists only where it creates genuine customer value.

By rationalizing SKU count in stores and removing a long tail of our least productive SKUs, we will free up to 25% of space, which we will then devote to more productive SKUs and to create more in-store inspiration. When we combine this with the opportunity to improve our stock disciplines, including processes around churn and clearance, we believe that we can deliver around GBP 10 million from these initiatives.

Our goal is straightforward: eliminate waste, improve productivity and create a better experience both for customers and colleagues. The result will be a simpler, faster and more productive organization capable of supporting future growth without a proportional increase in cost. These plans will allow us to reinvest, to create a sustainable capability, growth and efficiency over the next 3 years.

Over the years, we've always found productivity initiatives to help fund our investments. But this plan is bolder, and we will save more, and we will fully reinvest the savings over the next 3 years to support profitable and sustainable growth. As I said, we are a highly cash-generative business, and we can fund the investment we need for our step-up in growth through a combination of these Save to Invest plans and through prioritizing investment for growth through capital allocation.

Over the period of the plan and as we've always done, we will invest in incremental activity that will be recurring in nature. As John will describe in more detail, we will invest in deploying more strategic relationships across the business with fewer partners. As Laura will describe, we will reach more customers with a bigger, better stores estate, and we will invest in developing and improving organizational capability, for instance, in data and analytics.

We would expect the incremental P&L cost of this to be in the region of GBP 100 million over the next 3 years. That is higher than our recent per annum run rate, which has been closer to GBP 20 million per annum, but funded by an equivalent amount from our cost-out program. And over the next 2 years, deliberately focused within a bounded time frame, we will also reinvest a total of GBP 30 million to GBP 40 million on nonrecurring items.

Because of the nonrecurring characteristics, we will refer to these as adjusting items and we'll highlight their impact by excluding them from the adjusted performance of the business. We've developed clear guidelines and governance on how to identify costs of this nature. Adjusting items will include the restructuring costs associated with optimizing our operating model, the temporary cost of delivering a clearly defined change program and investment in foundational technology to ensure we have a good platform from which to deliver our growth plans.

Our CapEx has varied over recent years depending on opportunities to invest. Our historic average investment has been just over GBP 40 million per annum. An incremental CapEx over the 3-year plan period is expected to be around GBP 125 million. We will invest in store expansion plans to reach more customers, still with a disciplined approach to payback. And over the next 2 years, we have a plan to renew around 50 stores in our portfolio that are underperforming and that we do not think provide our customers with the right retail experience nor do justice to our brand.

And we're also working on plans to improve our supply chain infrastructure as we recognize that we will need more automation to improve operational efficiency and to deliver a better customer experience. So this picture shows how we expect the shape and nature of CapEx deployed over the period to evolve. You can see our planned investment in new stores alongside a focus on renewals and continued investment in technology.

And in FY '28 and '29, we would expect to invest in our supply chain infrastructure. We don't have detailed plans for the supply chain investment at this stage as we're still in discovery, but we are assuming investment after FY '27. We will always be disciplined in our approach to investment, recognizing that capital needs to be allocated to initiatives with different return characteristics. So for instance, we have strong new stores payback of around 4 years. We expect our renewals program to reverse the decline of the targeted stores, and we currently estimate a payback of around 3 years on these stores.

So just to revert to a reminder of the returns picture, we're investing for long-term value whilst maintaining attractive returns. We're building a sustainably leaner, more effective business. Our investments are aimed at driving growth in returns, albeit with a slight moderation during a period of transition. In both PBT margin and ROCE, our returns compare very favorably in our sector. We expect an adjusted PBT margin of around 11% over the plan period with improved operating leverage, increasing PBT after year 1. ROCE will remain strong over our investment phase at about 30%. These returns are expected to improve beyond the plan period.

I've spoken about capital allocation, and I've set out our approach and priorities in more detail here. First, we will invest in the business for growth to capture the opportunity that Clo has described. Our investment plans are disciplined and developed with a focus both on operational outcomes and financial returns. We remain committed to distributing a growing ordinary annual dividend given our strong cash flow generation and our confidence in our business and its prospects. Our target net debt-to-EBITDA range will remain consistent at 0.2 to 0.6x, and we will return any surplus cash to shareholders.

We've looked out over the next 3 years. But now I'd like to provide some near-term guidance for FY '27. Firstly, to note, FY '27 will be a 53-week year. The last one was in FY '22. We expect that we will continue to operate in an inflationary environment, and we're assuming inflation of about 3% on our operating cost base. We're guiding to GBP 25 million to GBP 30 million of cost removal in the year, contributing to our GBP 100 million 3-year target. And this cost removal will fund a similar amount of reinvestment for growth.

We expect GBP 30 million to GBP 40 million of adjusting P&L items across the next 2 years. These are primarily cash investments that support our growth plan and are nonrecurring after that 2-year period. The investments in FY '27 relate mainly to restructuring costs, the cost of running a change program and foundational systems investment. So we expect adjusted PBT to be broadly in line with FY '26.

As usual, we expect our effective tax rate to be 50 to 100 basis points above the headline rate of corporation tax, and we expect working capital to be broadly neutral. We're guiding to CapEx in FY '27 of GBP 60 million to GBP 70 million, reflecting the plans we've set out for investment, primarily in our store estate. We have significant store activity planned for FY '27, up to 10 new store openings, and we will deliver up to 30 store renewals focused on underperforming stores. We will also continue with our regular program of maintenance and refits. And we expect our net debt-to-EBITDA ratio to be within our target range of 0.2 to 0.6x.

So before I hand over, I will recap on the key elements of our financial plan. This is a plan to grow our top line at a rate of mid- to high single digits by FY '29. Our profitability will remain at attractive levels even through this period of investment. We expect an adjusted PBT margin of around 11%. We will prioritize investment for growth and our plan will be funded through savings initiatives and through cash generated by the business. We will retain our target leverage of 0.2 to 0.6x net debt to EBITDA. Our ROCE will be around 30% over the plan period, and we are very confident that this is the right plan for Dunelm.

Thank you for storing up all of your questions for this kind of final session. In the background, we are going to leave kind of the key summary of what I hope you've really got to understand over the last couple of hours, which is about our ambition to return to mid- to high level growth across our business, to deliver that adjusted PBT margin of around kind of 11%, stay within our range for our capital allocation, where we have a very clear policy, and to deliver those returns, we do believe that a 30% ROCE in retail is a very strong set of returns.

But we are passionate about Winning Hearts & Homes, the 3 growth engines. And of course, we really hope it has come through, but our desire to be customer first and to lead with customer obsession is how we think we're going to be able to unlock this. So with that in mind, we are very happy to take your questions. And we have roaming mics.

John Stevenson at Peel Hunt. I'll go with 2 to kick us off. So you've given sort of a few hints of the numbers around -- thinking about the refit. You talked about the uplift for 40% of the CapEx, I think, in terms of renewal versus a refit. Can you kind of finish that off for us? So what does a renewal CapEx look like versus kind of a full refit? And in your experience to date, I appreciate it's really early, but what sort of uplift have you seen on St. Albans? And how does that compare to the 2 or 3 renewals you've done already? I appreciate we're not going to extrapolate this, but just to get a sense of the detail behind it.

And then second question, just on the store, sort of space allocations. Are we -- I think there's about 30,000 SKUs in a store now. Is that coming down? Are you creating more space? What does the store look like in terms of its stock density? And how do you think about what the store is going to look like?

All right. Thanks a million, John. So why don't I start with just the renewals and refits, and I'll hand over then to Karen before maybe, Faye, you can pick up the in-store range changes that we're anticipating. So firstly, there are 2 parts when we're looking at our existing estate. The first are refits. There's a handful of refits that we'll continue to have over the course of the plan. And that's an example like St. Albans. And what we're seeing in St. Albans is that high single-digit growth. And that's as a result of the flow, the navigation, the change in what the offering experience is.

The wider group of stores are what we're calling renewals. And there are 30 of those renewals in FY '27 and then a further 20 in FY '28. Those are the stores where we believe there's value leakage. And you're talking about a couple of hundred thousand of investment in those stores to ensure they move from what we would say is brand diminishing to brand enhancing. That is all about fabric, flow, fittings, any other X words you can add in there. But that's what we're doing in those stores. So we'll get quite different returns where one is looking to enhance an already strongly performing store, and the other is to bring a value leakage store to a level that we feel really proud of.

I think you've actually answered the numbers questions as well. I mean, the refits come in many shapes and sizes from something which is more akin to a bit of maintenance right up to something much, much fuller like a St. Albans. And those ones can actually be quite expensive in terms of CapEx, but confident in a quick return. I think what's keeping the cost down relatively on the renewals is as Clo and Laura said earlier, we're not trying to move space. We're not taking something from a downstairs up to an upstairs. We're focused on the fittings, the flow and the fabric of the walls.

Yes. So regarding the SKU question, we are expecting to reduce some level of SKUs within some of our stores, but we are testing that over the course of the first year of the plan because we want to make sure that we -- what we see on the spreadsheets and then what happens in real life as a result of that. The other thing to say is, obviously, it links a lot with our sort of end-to-end stock flow and our store operating model as well because actually what we want is the stock flow and turn to be faster.

And then also it links to the sort of digital experience. So we simply might be taking SKUs out, but we'll be then enhancing how does the customer see our digital touch points and understand our Home Delivery proposition, our Click & Collect propositions as part of that. And then regarding stock density, we're always trying to optimize inventory, and that is part of the plan.

Richard Taylor from Barclays. Two questions, please. Firstly, on the CapEx slide, there's the green bar, which is a pretty big one. And I know you say it's sort of discovery, I believe, in relation to automation. But then can you outline some of your thoughts on potential efficiencies there, please? And I appreciate this is a 3-year plan, but if we were to put this on 1 year forward, will that investment in supply chain fall out? Or do you think it will sort of continue beyond this 3-year plan?

And then secondly, just a question on the distribution to shareholders. You're very clear that you want to stay in the capital allocation range of 0.2 to 0.6x. But in recent years, you have been towards the lower end of that range. So how do you think about potentially rewarding shareholders through the investment phase? Would you be willing to move more to the middle end of that range during investment? Or will that depend on how the revenue performance was delivering over that period?

Thanks, Richard. Karen?

Yes. Sure. So in terms of the CapEx, I do think we have spoken previously about the fact that we are not very automated at all in our distribution centers. A few of you will actually have walked around them, and we are still using some very manual processes. And partly, that's a function of the kind of shape of the products that we are sending through the distribution centers. We're not sending out nice neat little boxes.

But more and more, we see that there are automation solutions, and we feel ready to invest in that automation, not least of all because we're going to be a bigger business, we'll have much more throughput. And we also know that as you automate, you get efficiency improvements and the efficiency improvements are not just good for our P&L, but they're really good for the end-to-end customer experience.

So that is kind of the rationale for the network automation. We've done a lot of research into it. We know what others have done. We know what probably will suit us best, but we are in discovery phase because this would be a significant amount of CapEx. It will be bounded though, because once the automation is in place, of course, there will be ongoing running costs of the new machinery that we've got in place, but automation can take out some labor costs. So I would expect that green bar, if not to disappear completely, but to be very significantly reduced after the end of FY '29.

And if I just also pick up on the net debt to EBITDA range, the 0.2 to 0.6x. We've ended FY '26 at 0.3x. So absolutely, to your point, close to the bottom of that range. But the fact that we've got a range gives us optionality. It does mean that where we see good opportunities for investment, then we can invest. It does mean that we can be thoughtful about distributions to shareholders.

Now we believe that we have put all the investment that we need into the plans that we have presented today over the next 3 years. And we've also set out that we are still thinking about shareholders' ongoing requirements, and that's why we're very committed to an attractive ongoing annual ordinary dividend.

David Hughes from Shore Capital. A couple of questions from me, please. First of all, on the kind of space in-store, you talk about reducing the space by about 25% or freeing that up. What would be the plans to use that? Is that a case of merchandising and insets like you see at the Kingston store to kind of bring to life? Or are there any other plans for use of the excess space?

And then secondly, in terms of the targets of mid- to high single-digit growth and a profit margin of around 11%, in a world where you're seeing kind of the tougher consumer environment or things aren't going as well as perhaps we all hope, what's the tension between those 2 and that GBP 100 million sales? Is there a world where some of that goes to support the margin at the expense of growth? Or is the growth the most important thing and you'd be more willing to take a hit on the margin side?

Great. Thanks, David. So if we start with the use of space in-store. I think Faye, I will come to you in a moment. But what we're thinking about is ensuring that our space has become much more shoppable. So if you spend time in our Kingston store or if you spend time in our St. Albans store, you will see that it is much easier to see the breadth and depth of our products and much easier to shop by mission.

So much more of these home spaces curated in this way, which are working exceptionally well for us. So that is one of the priority elements. The other element, though, it comes back to the role of categories and understanding what are those destination categories, where we need to extend those and where are those high-value categories. So Faye, anything else you wanted to pick up on the specific role of category within stores?

Yes. I think that point is really important. So yes, whilst the inspiration will be a key element of it, it's not only going to be used for that. There are some categories where we feel like we've got opportunity to increase the range more in some categories into the stores as well. So what we've learned from our digital sales, for example, how we can then apply that differently and where we really want to deliver destination status in authority categories, we know that the store experience as part of that is really important.

And then I guess specifically coming back to your mid- to high single digits and probably Karen and I will tag team and Laura, feel free to just jump in with the customer lens. What we are sharing today are some of the early evidence points of how you can get that mid- to high single-digit growth by changing either the flow in store, like our example, plain dye in bedding or by changing the good, better, best architecture per the pans example.

So on both of those, you're seeing mid- to high in the pans and already double digit in the plain dye. And then, when you couple that with increasingly more and more customers shopping using our app and the 40% uplift that we see in that space, we've already got almost 0.75 million of our customers on the app, and we expect that to continue to grow. So it's clear from those data points that the demand and the appetite is there. Our job of work is to scale that quickly so we can capture maximum demand.

I don't actually see that there necessarily has to be a tension between those 2 things, David, because this is a customer-first plan. And we've tried to demonstrate just how much of that customer we're leaving on the table at the moment. That's 80% of the wallet that they're not spending with us. So by executing on the plans that we've laid out, we feel confident that we will get the growth and efficiency is also good for the customers. So some of the things that we have talked about, actually, they take out the friction points in our processes.

We are really focusing on end-to-end processes because that's where you see those friction points. So if we get better customer service, that's a bit of that self-reinforcing, which also is kind of looping back into the top line. And I also think it is important to say that we do think that we have put into this plan with the assumption that we will deliver around about 11% PBT margin over the plan period. That does include the stuff that we need to spend and what we need to save.

Before we move on, is there anything else, Laura, that you'd want to add from the fact that we're a specialist with universal appeal and hence, operating across all the tiers?

Yes. I think the thing that gives me encouragement on this one is the fact that we're such a fragmented market. And when I look at the customer base, nearly half -- just under half of our customers only come in once a year. It's not beyond the wit of man to say, actually by improving our customer proposition, how it shows up that you can actually do that better. So I think I look at it and I think that there's bits of value growth across the full chain.

It's Georgina Johanan from JPMorgan. Just a few questions -- well, 2 questions and then 2 very quick ones, if that's all right, please. The first one was just with regards to the renewals. Obviously, it's a meaningful, I think, 15% of the store portfolio this year and also what you're going to be doing around the freeing up of the 25% space, just in terms of any disruption to sales that we should be building into our models sort of near term for that, please?

And then sort of thinking about the sales uplift that you're hoping to drive more broadly, if you have any multiyear examples that you could share so we can have confidence that it's not just like a 1-year step-up and done kind of thing. And then just the 2 quick ones was, at the end of the plan, assuming all goes well and the consumer environment is benign, let's say, fingers crossed, where would you see the fiscal '30 CapEx level? And where would you expect the fiscal '30 PBT margin to land in round numbers, please?

Thanks, Georgina. Right. So let me take the renewals question and Karen, then we'll tag team on both what we've seen from an experience point of view and then equally a longer-term outlook. On those renewals, we've already got 3 under our belt. And we've now got a very tried and tested route of being able to get in and out very effectively, whether that is whilst the store is closed, early doors or overnight or making some key changes during the day.

And we are not seeing any levels of disruption where there is maybe over the course of the week, it rebounds very, very fast. So very comfortable when you're looking at 15% of our estate or overall kind of the 25% that we can do this effectively whilst engaging our customers, sharing it's going to be a better end state without disrupting their trading patterns. Karen?

Yes. And any disruption that we might assume is already built into our appraisals. So we've got that included in our payback model. And just in terms of the CapEx, I think it's the same answer to Richard's question, which is we do expect after FY '29 that we will have completed the network automation program. So the green block will largely go away. What happens to the blocks associated with tech, new stores and refits? I think we will continue with a regular drumbeat of those, and we will look for opportunities.

I mean I think if we saw some great opportunities to spend a bit more and we're confident in the return on investment, then I think that would be viewed as a good idea. On the page after the CapEx graph, we've actually shown a schematic. This is not a forecast. It's just a schematic of what could happen at the end of the plan period in terms of the PBT margin.

You might have noticed that threaded through our presentations, we are talking about sustainability and leverage. And when we get to a consistent level of mid- to high single-digit top line growth, that provides a lot of operating leverage. If you put that in the context of some of our investment is likely to moderate, then you can see how that picture could emerge.

Ben Hunt from Panmure Liberum. Over the years, you've grown Internet, your penetration up to quite a high level in the 40s. Some would say that's quite high generally. You're asking for -- or you're expecting more online growth and you're also expecting more store growth. But I wonder in those building blocks to get to that sort of mid- to high single digit, how much contingency you've actually built in for the potential for store cannibalization?

Okay. Well, let's maybe talk about the full benefit of both in-store and physical with Laura. But in terms of cannibalization, when we looked at those physical sites, and we see kind of 100 of those sites that we can go after. We've also looked -- I mean there would have been -- that list would have been significantly longer, Ben, if we weren't accounting for cannibalization. So that list is a post-cannibalization review. So that's -- I think we've considered that as we think about our target areas to go after. And in the spirit of, is there more growth to be had, I guess, following from your breakout?

Yes. I mean I hope it was clear in the breakout that we consider that there's both growth through the store and also connecting them. I think it's really interesting, the interdependency that they play. So if you think about a Click & Collect order, we take -- it's taken online, but fulfilled in-store. So the more that you can actually drive your store network, you grow your Click & Collect business.

The opposite is also true, which is our MPOS, which is our colleagues in-store who are selling some of those higher ticket item products on the tablet. So as we build those destination status, they're taking those orders in-store and then they're being filled by a Home Delivery network. So is there such synchronicity between having this omnichannel experience that actually gives us confidence that the sum of the parts is greater than the whole.

And I think the really interesting thing from some of our new store openings is we're not seeing cannibalization. Actually, we are seeing that there's a halo in online sales because actually, you're getting more of that awareness in that catchment area. You're getting the physical and mental availability in someone's head, it's on their radar, and that's leading to a bit more of a digital halo across them.

[indiscernible] renewals. I think you actually said that there was a difference of 8% in the -- from the top to the bottom of like-for-like performance over a number of years. Is there any way you can maybe frame it in terms of what's the actual difference in sales densities between the top-performing stores and those 50 renewals or just some form of qualitative view of it?

We haven't really disclosed any of that before. But I think that 8 percentage point range is really what we are focused on actually moving the bottom up to the top. The step one of that though is to actually make sure that we don't have what everyone is referring to as the value leakage to stop the value leakage and then move up the scale.

It's Anne Critchlow from Berenberg. I've got 2 questions, please. The first one is on the white space. And I think historically, Dunelm had an idea that 220 superstores might be capacity in the U.K. And I think you've got about 190 locations now. So I'm just wondering where the incremental 70 come from and whether some of them might be small urban concept stores? And if not, where do you see the small urban concept stores fitting into your strategy now? And then the second question is really just on the GBP 100 million of cost out. I'm just wondering how much of that might have happened anyway, for example, with self-checkout.

Okay. Well, let me take the first one, and then I'll pass to Karen for the other. So in terms of where do we see it coming from, we've researched where our customers are telling us they [indiscernible] and equally where we see unmet demand. And as a result of that, there are 3 main parts of the U.K. that we can see we're underpenetrated on, and that is Northern Ireland, Scotland and London and the Southeast. But you're absolutely spot on.

This is not a game of rolling out 10 new -- up to 10 new superstores every year. We will look at some of the London infills. We will have more of those local stores, which are close to the 15,000 to 20,000 square foot as well as pairing it with the larger superstores. And the way we're really comfortable with that now is because we're connecting more of the physical and the digital.

So if you take our Kingston store or the St. Albans store, both of those, one is slightly above 10% in the store-enabled sales, one is slightly below 10%. That's a very high proportion where our store is acting as another shop window for digital sales. So that's how we're balancing it, changing the format, understanding where we're underpenetrated and then maintaining our discipline.

Yes. So just in terms of the GBP 100 million of cost out and if we would have done it anyway, I think we would have done some of this undoubtedly because we've always been looking for productivities to help to offset inflation and our investment requirements. But I think what is really neat about this plan that we've got is how interconnected it is and how it has moved from being functionally driven to being end-to-end.

So we've been successful being a very functionally organized organization. But now as we're looking even more deeply into our cost base and how we show up for customers and where the pain points are, we see that we have to actually look end to end. And so I don't think -- I think there are some opportunities that we wouldn't have picked up in the same way as we're picking up now. And I was just sort of thinking about, okay, stop.

So I think we would have picked up self-serve checkouts. Would we then have linked the self-serve checkouts with -- oh, hang on a minute. Actually, maybe we could do with a labor scheduling tool. And a labor scheduling tool, which helps to take advantage of the labor we're releasing from store actually, we could put that into our supply chain and logistics operations as well. We might not have thought about that.

And as we're taking hours out of our activities, then we need to be thinking about how those hours flow through from the operation, for instance, in our distribution centers to the way that deliveries turn up at a store. So that's been granular and detailed. But by thinking about end-to-end, I think that we wouldn't have got to all of this without thinking.

I want to also -- John, if you're really seeing it in the tech space, moving away from the kind of the point solutions to the connected?

Yes, that's really what I -- do I need a microphone? That's really what sits behind the move we've made into more of a platform-based architecture. So some of the examples Karen has provided, we can scale solutions across more than one function. And secondly, by bringing in a platform, you cover more of the process. So we're actually thinking end-to-end process and not just about that individual opportunity.

It's Tim Ramskill from Bank of America. I'll tackle a couple of areas, please. One, just in terms of your thoughts around the acceleration in growth to the mid- to high single digit. Obviously, you said you sort of you've been disappointed with the growth rates recently. So how quickly do you think some of the actions you're taking can start to bear the fruit? And then sort of related to that, I guess, you have certainly enjoyed over the company's history, a point where others have ceded share, others have exited the market and perhaps just your thoughts on what needs to happen in the marketplace to achieve what you're looking to do.

And then around margins, I'll make a sort of, I guess, a few observations I've picked up from this morning, but you're pretty clear that thinking about the trading calendar is kind of broadly margin neutral, I would kind of say. But obviously, you did have gross margins down in the second half of the year just reported. Then you've got the kind of focus on own brand, which I would imagine is gross margin positive. And then you've got the CapEx spend, so I'm imagining that D&A is going to go up. So just some thoughts, maybe Clo can help us here just a little bit just to sort of think about the moving parts within the profit bridge going forward.

Okay. A lot nested in there, Tim. Thanks very much. So let's maybe start in the middle. What needs to happen in this environment for us to feel really confident that we can deliver against it? So we are a specialist with universal appeal. And that means whilst many parts of this fragmented business or fragmented market are focused on certain customers, we believe we're well placed to be able to deliver for all.

So whether that is at the discounted range where we've got a very strong entry price point solution and value equation or at the higher end of the tiers where we're looking at full premium end state solutions, equally when you're looking at our pure-play players who are definitely active in the market. But the one thing we know about homeware customers is they do want to see, touch, feel and smell and therefore, that's a critical advantage that we play.

And whilst, of course, the grocers do have the footfall, what they don't have is the range and offer that we have. So even though we have got different players playing in different quadrants, we are well placed to be able to serve all our customers. And it's why the chart that I shared is so important when we look at the customer landscape because we're able to understand what our different segments want and ensure we can dial up or dial down those experiences depending on what's going to create the most value.

And if I hand over to Karen, do you want to share the profit bridge and the building blocks?

Yes. So I think the profit bridge simplistically really relates to what we said in the presentation about removing our least productive costs and putting in investment, which we think will benefit both our sales line and our operating efficiency. On the gross margin specifically, we actually stopped guiding to gross margin, but that doesn't mean we don't think that we will have an ongoing very strong gross margin. I think we do. But we like to have some optionality in that gross margin.

And what this plan isn't, it is not a whole-scaled investment in price, which would take that gross margin down. And you're right, there are moving parts within that around the leverage that we can get from own brands. So we will continue to be really disciplined around our gross margin. It has moved in corridors over time, but always very strong.

And we want to be able to give the customers what they need as well as managing the input costs that go into that gross margin. And then the things that we are doing from a productivity perspective will be seen both in the top line and through the various elements of our cost line, which we are likely to continue to show in terms of volume inflation, investment and productivity, but pulling out some of the specific lines that we've talked about.

And then to your point around kind of the acceleration through the plan. Yes, this is a 3-year plan, but it doesn't all happen in FY '29. So we are expecting to be dropping that value through the course of the plan. And if we think very specifically about this year, of the -- up to 10 stores that we're looking to open, we've already got 4 that are legally committed and a further 4 that are very close to that.

When we look at moving from value leakage stores to value-creating stores, we've got 30 in the plan to do this year. And as we noted, as we move those, there's minimal disruption. And we have gone from a place where we didn't have a customer-facing app for iOS and Android until February of this year, and we now have -- almost 750,000 customers active on that. So we can see those building blocks starting to come into place.

And I don't know, Faye, if you want to just note on the trading calendar without divulging anything that might be competitively disadvantaged to us.

Yes. So I think the trading calendar is a really interesting one because, as I said, it's not just about discounting. It's about showing up for all of the moments in which a customer needs homewares or furniture in their lives over the course of the calendar year. And I think we can be much more relevant across that calendar year to drive more volume and frequency into full price as well as supporting with discounts. So I do think that the trading calendar represents a great opportunity for us and isn't margin dilutive.

Yashraj Rajani, UBS. So 2 questions, please. The first one is on your supplier base. How concentrated is it at this point in time? And along with the SKU reduction going deeper into the SKUs that do well and rationalizing the supplier base, like the combination of all of those 3, what is the gross margin uplift that you're expecting? That's the first one.

The second one is just a follow-up on the trading calendar, please. So can you give us an idea of what the full price sales is at the moment? And what range would you like it to go to? And how are you going to balance teaching customers to trade on discounts versus also making sure that they buy on full price?

Okay. So we won't be sharing the balance of full price sales versus discount sales, but very happy to talk about how we're addressing that with our customer base. But first and foremost, can I just talk to the supplier point? We have a number of very dedicated suppliers that work with us across products. And those suppliers have actually co-created much of this product plan with us, right? We work really closely together.

So when we talk about reducing our supply base, that is very much in the tech space, where we have a proliferation of suppliers and partners right now, and we see an opportunity to work with fewer bigger partners to accelerate our outcomes. So just a point of clarity there. Our dedicated suppliers that we work with day in, day out from a product standpoint will remain hand in glove. But did you want to pick up on the how they're feeling about this plan and how rationalization for them is not a concern, it's an opportunity?

Yes. And obviously, as Clo mentioned, we are very -- we work in close partnership with our product suppliers, and they have been through all of these plans. We've been through that together. And they are equally excited about the sort of benefits this creates both from the omnichannel space, but also the productivity of SKU rationalization because actually, they can see the benefit of really elevating the quality, elevating the value perception and then making sure that what's efficient for customers is efficient for us and also efficient for them. So we see that as a win-win across us and our supplier partners.

And anything else you wanted to add on trading calendar? No is okay.

No, I don't think so.

Thank you.

Kate Calvert from Investec. Just a couple from me. How long do you think it will take you to get around your categories and remove the duplication product? Is that something you could complete within a year with the natural sort of buying schedule that you go through?

Second question is, as part of your product plan because you're slightly interested in that one. Are you looking to do more sort of innovation drops throughout the year to create more excitement within the store as that calendar changes? And the final question is just on what is the opportunity to take working capital out of the business, particularly as you're reducing the drop? And what's your thoughts on improving stock turn? How much can you improve it by?

Okay. Thanks, Kate. So I think just starting, when we were sharing some of our early insights in February, we've already talked about the opportunity to rationalize some of the sub-brands. So that is already well underway when we think about things like Churchgate or Elemental. But in terms of the specifics of rolling through, Faye, do you want to just give confidence over the speed that we can do that?

Yes, sure. And obviously, we do a lot of our product development in-house. So we can target categories through our seasonal cycles. The reality is the product life cycle is 6 to 9 months of development. So it will take us -- the course of this plan to be able to touch every single category.

And obviously, it will be iterative. So even though we do one category, it won't be finished because there'll be learnings from that, and then we'll be feeding that back into the product cycle. So are we ever going to be completely done? No, but we expect by the end of this plan to be -- to have made great progress through many of our categories.

And we're not holding back on innovation, right?

No. And I think that's a really critical component because actually, we want to be able to show new innovations more regularly to customers and be able to use our customer calendar, our trading calendar to be able to do that.

On working capital, I think this is, as I said, a very interconnected plan. And there is nothing that we'll be trying to do to not optimize the working capital. And there's quite a few areas that we are going to be focusing on that should have working capital benefit. I mean, just thinking about automation in the network, SKU rationalization, RFID, bringing process to systems and having the teams having new tools. So once we've got all those into our system, then we'll start to see what happens on the working capital front. I am sure there is improvement to be made there.

It's Manjari Dhar, RBC. I also had 2 questions, if I may. My first question is on the store -- the white space plans. How much visibility do you have on the pipeline for stores over the next 3 years? And I guess, if you were to do 10 -- the maximum 10 a year, you'd still have 70 stores in that opportunity. What's the time line for those 70 opportunities? And then my second question was around marketing. I guess you've outlined a number of customer-facing changes. How do you ensure that those -- infrequent shoppers that you talked about, how do you ensure they see it and they come in? Is there a marketing cost element of this part?

Do you want to start with the marketing, Laura?

Yes, definitely. So what we are looking at is understanding a couple of elements, which is what are the customers who love us, what do they love about us? What do our infrequent customers think about us and what do the consumers who don't shop with us think about us. And by looking at those barriers to consideration, you start then actually thinking about how Dunelm needs to show up in order to tackle them. And we consider our social channels to be one of the best channels that we can do this.

So when I look at some of the stats on us, we are known. So we've got really good high awareness, where we tend to fall down a little bit versus benchmark is in consideration. And so this is really key for us. We need to take those barriers to consideration and actually be more targeted at how we do that. And when we look across some of the perceptions, it's about how do we tell the special story of Dunelm that you can get this magic trio together, which is it's the destination for really good value products that are really stylish with good quality and you stitch that.

So oftentimes in markets, you see kind of a high-low behavior, and we are proudly in the middle, and that's the value equation we need to be telling to customers. And so we're very -- yes, you're absolutely right. There's a marketing focus here on addressing barriers to consideration and how do we tell this story of what Dunelm is.

And on the second point, we broadly have a 12-month rolling view of kind of likelihood. But very often, we are in the hands of planners. And so therefore, that is why we look at 100 locations rather than focusing on 30 locations to ensure that we're keeping our eyes open for anywhere where we know that we can open without cannibalization, but also ensure that and if something gets in the way because of scarcity or because of planning that we have alternatives. Thank you. We've probably got time for another 1 or 2, so that I don't break my promise in getting you out of here by 12:30.

Georgina from JPMorgan again. Just while we have sort of the broader team here, just take the opportunity to ask a question on sort of agentic commerce and GEO, if that's all right, please. And just interested to know sort of what proportion of your traffic is coming from that at the moment and how that's evolved?

And then also, obviously, we're all sort of in a learning phase or I should say it for myself, I'm in a learning phase at the moment. When we think about, say, the 2 or 3 key things and competencies that you need to have in place to ensure that you are getting that traffic from GEO, like what's the switch from SEO? What do you need to change from SEO to GEO, please?

Well, Laura.

Yes. So I think when it comes to agentic and GEO, you need to think about it in 2 ways because you need to think about how often the bots from the LLMs are actually indexing your site versus then there's another element, which is how much is direct traffic. So you're looking at 2 things when it comes to GEO. So we track how often LLM bots actually are indexing Dunelm because that for us is a visibility element.

So we're looking at which sites are tracking us on which pages and how they're calling us. So that's kind of like how are you showing up and how frequently and what volume are you showing up with in those. When it then comes to like what's the direct traffic that's coming to you, it's still within the industry, quite small, but you have to take into account that actually you're being involved in an upper funnel research phase as well. So most retailers will be having low single-digit traffic that's coming from LLMs. But I think that's the thing that we know is that this is the forefront of change, and you have to adapt right now or be left behind.

And then we're pretty clear on the 3 things that we need to be enabled for optimizing for GEO, which is the first one is your data. It has to be accurate, rich, structured and in a way that is really easily consumable by LLMs. So you don't want anything blocking your ability to be indexed and you can actually also build in integrations with LLMs. They're now taking product feeds. So getting closer to LLMs for your product feed and making sure that, that quality information is problem #1 or thing you've got to go after first.

The next bit is the nature of search has changed, and you will have heard this broader within the market. So you're no longer at the lower funnel, you are more in the broader funnel, upper funnel. So you need to move from content that is optimized around how to sell a sofa into actually, I want to update my living room. So you need to move as a retailer, we need to move from optimizing for just alone for like how to measure up curtains or how to choose your curtains. We need to be like where do I even start? I want to change something in my living room. So you need the onus is on us to actually change to be mission-based content generations so that we are being consumed earlier on by LLMs within this purchasing journey.

And then the third one is our focus on LLMs not being transactionable now, but you can see a pathway into the future. So as you're starting to think about all of your -- everything in your business being API-driven and integratable with other LLMs, we need to be thinking about how we can transact out of our own ecosystem. And so those are the kind of, I would say, 3 pillars that you need to enable to move from SEO into GEO. So -- but happy to have further conversations. I think that was it.

Did we have any other questions in the room? Okay. I think there were 3 more. I might limit them to one each.

Benjamin Yokyong-Zoega from Deutsche Bank. Just one on the white space opportunity. I noticed on the map, it was mainly focused on London. Ireland wasn't included. I'm just wondering what kind of opportunities you see there post the acquisition of Home Focus. And a second small one, if I may, just on marketing. Does the uptake of the app change how you can approach promotional periods now? And just any update on what you're thinking would be helpful.

Okay. So I guess -- thanks very much. So 2 rapid-fire answers on those. Yes, absolutely, we continue to see a very strong opportunity in London and the Southeast. You see it on the map. You see it in kind of what we've done in Wandsworth last year and with Kingston, and we're going to continue to keep pushing there. So that is kind of asked and answered. And then in terms of Ireland, the reason actually we didn't have it on there is because a lot of what we've shared today is about the opportunity that's in the U.K., right?

It's still early days in Ireland, but we are spending a certain amount of time there really understanding the proposition. The really neat thing about the Irish proposition because bearing in mind, it's still a GBP 1 billion homewares market, right? And we definitely want more of that. But most of our stores there, as they transition from Hickeys to Home Focus and now Dunelm, they're smaller format stores. So that's an amazing test bed for us to be able to really learn how we get effective small stores with our proposition. And as we improve them there, we'll equally be able to roll those back across the U.K. Specifically on the marketing point?

Sure. So app is fantastic because it opens up an entirely new marketing channel for us with push notifications. And from a customer perspective, you're more likely to open and engage and click through with a push notification than say you are with SMS or e-mail. So the app and scaling our monthly average users on the app is really key about because it opens up a new comms channel.

And I think you're right. It also then enables us to think about how can we use it effectively throughout the year in terms of capability. So we definitely have on the capability pipeline, thinking about things like early access and things like that. What can we do to build capabilities into app that gives a value exchange for our customers to build up that base. And then once you've got them, you can have that more direct relationship with them. Yes, spot on.

Okay. Okay. I'm getting a -- I need to call it. That's fine from the back of the room. So if you will bear with me, we'll happily take any of the other questions you may have offline. But just out of respect for everyone who has given so much of their time. We really, really appreciate it. Thank you for joining us. Thank you for your interest, and we look forward to following up with you all in due course. Thanks a million.

Hello, and thank you for your interest in Dunelm and for engaging in our full year results for FY '26. We have had a solid year of performance with 3.1% total sales growth, coupled with slight margin expansion to 52.5%, all in a year which continues to present challenges to the whole sector. Within the homewares and furniture GBP 25 billion U.K. market, we yet again gained share to 7.9%. Our customer satisfaction increased for another year, this time up 2.4%. But I definitely want to highlight that this is already top quartile performance, but it was encouraging to see this measure improve year-on-year.

Through a number of efficiency and productivity initiatives, we also made strong inroads covering the on cost of inflation, resulting in a flat year-on-year profit of GBP 211 million. Free cash flow was up to GBP 155 million from GBP 127 million. However, this was primarily driven by some heightened investments in the previous year as a result of our freeholds and acquisitions. You will all be aware of our drive to be present where our customers are and hence, have been calling out the role of digital within our business for a number of years now. Supported by continued web enhancements, the launch and scaling of our app and store-assisted digital selling, we are currently at 42% digital sales with consistent increases annually.

Finally, we are very proud to communicate our growing ordinary dividend per share at 45.5p, up 1p versus FY '25. I hope you all know that our focus on our customers at Dunelm is a core part of what I and our team stand for. Internally, we refer to this as customer obsession, and that's increasingly driving our decision-making in our business. And therefore, it is important to see the overall year-on-year uptick in customer satisfaction.

With renewed focus on service and in-store experience, supported by a revitalized store operating model, alongside the rollout of our self-service tills and a revamp of our in-store walkway showcasing the very best of our offers or most relevant products, we drove an increase of 3% in our store CSAT. As trailed throughout the year, our growing Click & Collect offer came with an increased CSAT, too. Whilst noting this has come from a lower base, enhancements such as the delivery of Click & Collect rooms at the front of store and pick by department functionality have facilitated ease and speed of pick and hence, customer experience.

Home delivery remains on our watch list. As whilst our own 2-person delivery associated with our furniture proposition did increase year-on-year by 2 percentage points, our courier service enabled by third parties went back across the year. We do have a number of operational and technology-led changes in our plan to support improvement in this space, however. One of our key strengths and the reason our customers come back to us time and time again is because of our products. They are brilliant. And whether that's one of the 6,000 new owned brand products we brought to the market last year or from our full range repertoire.

Whilst our heartland products continue to perform strongly, lighting, in particular, has gained more traction with our customers, up 8 percentage points year-on-year. We are also encouraged that following a Q2 availability challenge on furniture, our availability has been strong throughout the second half. Our 12 campaigns and events continue to play an important role with customers outside of our 2 core sale events. We flagged with you in Q2 the impact of Black Friday and the associated considerations for us looking forward.

Relevance is key. And our focus on Summer Living paid dividends with our campaign matching the size and scale of our traditional Winter Warm performance, both of which were our top-performing campaigns. There is more to do in this space, however, as Summer Living hasn't historically been a key area of focus for us, and we know there was unmet demand. But while relevance is important, having a point of view on design as a specialist is also critical. And our collaboration with Yinka Ilori from twinkle in the eye to product on shelves and online within 18 months demonstrated not only that, but the pace and precision of execution. One of the rugs in the range sold out within a day of launch and the pink and green dining chair within a week.

In areas like this, planned scarcity will continue to be a key factor. I should note that we are very proud of our availability metrics across our regular lines, which supported by our strong forecasting and replenishment systems continue to ensure we are on time and in full for our customers. This year has also been important for its continued reach across channels. We are not satisfied with the number of store openings and have bigger ambitions on this front moving forward.

But the quality and impact of the 2 new stores and 1 reopening we have had is excellent. With business-leading transaction levels for Kingston and continued access to London infills with Wandsworth, we continue to gain confidence with the choices we are making on proposition, on flow and on format. We've also had some strong refits, ensuring we are rolling out the tried and tested latest blueprint. And the high single-digit increases in St Albans, we are now seeing year-on-year validates those choices.

Finally, we continue to invest in stores that are not at the standard they should be. And later in the strategy update, we'll discuss this more. We are passionate about digital connectivity, not only because this is how our customers want to shop, but moreover because it's how our customers shop in the most effective way with us, helping them name larger baskets with more frequent shops. Our app gives us 40% higher basket value than web-only customers, which is already ahead of store-only customers, and conversion through this channel is higher.

This year, we've become more ambitious with our social channels, in particular, TikTok and YouTube. However, whilst active, we firmly believe we can continue to grow these channels. We have to acknowledge that sometimes we are followers. We are definitely not fast enough and weren't on the app. But as a business, when we move, we move. And we are delighted to have been one of the first launch partners with Google on conversational commerce in Europe through our AI-powered shopping assistant, which if you're an iOS user, you can access now. The future is here.

We do pride ourselves on service, but there is a big prize for efficient service. We are now 85% of the way through our self-checkout rollout with 2/3 of our customers shopping in this way where it's an option. And as with all retailers, we have taken measures to combat shrink whilst improving colleague safety and are confident that these are working for us. It's nothing in isolation, but moreover, prompts, triggers, cameras, tech and people, all in combination.

And I did want to give a big shout out to our made-to-measure offer, which has historically been the perfect combination of product and service combined. At the end of this year, we layered in technology through Salesforce, which has enabled us to enhance better availability and will support MTM's double-digit growth moving forward.

So a lot going on this year, but I'll now hand over to Karen, who will share the review of our numbers.

Thank you, Clo. As usual, I will take you through our financial performance for the year ended 27th of June 2026. I'll give you a summary level overview, and we'll then go into more detail. As Clo said, we delivered a solid performance in FY '26 with total sales up 3.1% to GBP 1,825 million. We delivered another strong gross margin performance with a gross margin of 52.5%, up 10 basis points year-on-year.

Net operating costs increased by just under 4% year-on-year. Profit before tax of GBP 211 million was flat year-on-year. PBT margin decreased slightly by 30 basis points, but remained strong at 11.6%. And diluted earnings per share of 76.8p was flat on the prior year. We delivered another year of strong cash generation with GBP 155 million of free cash flow, GBP 27 million higher than the prior year. Operating profit conversion to cash was up from 57% to 69%, supporting a GBP 7 million reduction in year-end net debt to GBP 95 million.

At the end of the year, our net debt-to-EBITDA ratio was 0.3x, which is within our targeted range of 0.2 to 0.6x. The Board has declared a final dividend of 28.5p per share, taking the full year dividend to 45.5p per share, a progression of 2.2% on the prior year. And we also paid a special dividend of 25p per share earlier in the year.

We delivered just over 3% total sales growth within a challenging macro backdrop. Now we've taken a slightly different approach to illustrating how sales grew. As a truly omnichannel business, there is, of course, an overlap between store-enabled sales, which comprise sales from walk-ins, from in-store tablets and from Click & Collect and digitally enabled sales, which comprise sales from home delivery and also in-store tablet and Click & Collect sales. Store-enabled like-for-like sales were up just under 1%. We further expanded the store estate, opening 2 new stores during the year, both in London, in Wandsworth and Kingston, and we reopened our Yeovil store, which had been closed following a fire.

Digitally enabled sales grew by more than 9% and digital participation increased by a further 2 percentage points to 42%, leveraging the continued benefits of investment in our digital ecosystem. The launch of the Dunelm app has strengthened our proposition, creating additional opportunities to deepen customer engagement and deliver a more connected shopping experience. We saw broad-based growth across categories and heritage categories like textiles with established authority continues to underpin our sales growth.

Made-to-Measure window treatments again delivered strong growth, demonstrating the value of our specialist expertise and the benefits of targeted investment in high-growth categories. And the net result was that we continued to outperform the total homewares and furniture market, increasing market share by 10 basis points year-on-year to 7.9%.

We delivered another strong gross margin performance, demonstrating the consistency of our model over time. This year, gross margin of 52.5% expanded by 10 basis points, benefiting from a foreign exchange tailwind, partly offset by increased customer participation in promotional events through the course of the year. We delivered to the cost plan that we set out at our interims presentation. And per my summary, net operating costs of GBP 734 million were up 3.9% year-on-year. Volume-driven costs, primarily variable logistics costs and performance marketing expenses have grown in proportion to the growth in digital sales and added just under GBP 20 million year-on-year to our cost base. Inflationary pressures continued, driving more than GBP 20 million of incremental cost. Wage inflation remained the most significant headwind, although it began to moderate in the final quarter of the year due to a relatively lower rate of national living wage increase.

We also experienced cost pressure in our supply chain from higher fuel costs driven by geopolitical events and increases in warehouse rental costs. We invested an incremental GBP 10 million during the year, primarily in our store estate. This was a combination of investment in new store renewals this year, a lower number than usual, partly offset by the annualized impact on cost of higher activity in the prior year. Productivity gains accelerated in the second half, as we said they would, delivering an incremental GBP 15 million over the full year.

Savings were driven by operational improvement across the business, particularly labor optimization in stores, which was supported by the further rollout of self-serve checkouts, alongside efficiencies in carriage costs, logistics and marketing. Other items contributed a year-on-year benefit of GBP 10 million. These included a GBP 3 million increase in net operating income related to insurance receipts in respect of 2 store fires, primarily compensating for the associated loss of trade. And given the challenging backdrop, performance-related remuneration costs were also lower in the prior year. And we saw a benefit from business rates of about GBP 1 million, which will provide an annualized tailwind into next year.

In summary, we used productivity gains and other cost reductions to help offset upward pressure from volume-driven costs, ongoing inflationary pressures and continued investment for growth.

Our net operating profit increased by GBP 2.9 million year-on-year, but net financing costs were also up GBP 2.9 million, driven by a higher lease interest charge, this year, GBP 10 million, prior year GBP 7 million. Underlying interest costs remained broadly stable, in line with net debt levels throughout the year. So profit before tax was GBP 211 million, flat year-on-year. Profit after tax of GBP 155 million was about GBP 1 million lower than the prior year, reflecting an effective tax rate of 26.3%, 40 basis points higher than the prior year. This was slightly higher than our historic average of around 50 to 100 basis points above the headline rate and was largely due to an adjustment in respect of nonqualifying depreciation. Basic earnings per share was 77p and diluted earnings per share was 76.8p, flat year-on-year.

Cash generation increased in the year. Operating cash flow grew by 5.7% to GBP 270 million, benefiting from a GBP 9 million working capital inflow and higher operating profit. The working capital inflow was largely driven by lower inventory levels, partially offset by a corresponding reduction in stock-related payables. Capital expenditure of GBP 43 million was in line with guidance and lower than the prior year, which included investment in freehold property purchases and 2 small acquisitions.

During FY '26, CapEx primarily related to GBP 27 million invested in our store estate and GBP 13 million of tech-related CapEx, including investment relating to the build and launch of our app. The store investment related to the costs of opening 2 new stores, including significant work on our new Kingston store, 7 major refits and the continuation of our decarbonization program.

Lease liability repayments were GBP 8 million higher year-on-year, primarily reflecting the expansion of the lease portfolio and the renewal of lease agreements. We generated GBP 155 million of free cash flow, GBP 27 million higher than the prior year, with operating profit conversion improving from 57% to 69%, supporting a GBP 7 million reduction in year-end net debt to GBP 95 million.

Total dividend payments in the period were GBP 141 million. Just to note, the group also periodically makes share repurchases to hold in treasury to satisfy obligations under employee share schemes and in the year, repurchased GBP 16 million of shares. The Board has declared a final dividend of 28.5p per share, taking the ordinary total dividend for FY '26 to 45.5p per share, up 2.2% on the prior year, which is ahead of earnings and a mark of the Board's confidence in the future prospects of the business. This was in addition to a special dividend of 25p per share paid in April, taking total dividends declared to 70.5p per share. Our net debt-to-EBITDA ratio ended the year at 0.3x, which is within our target range.

So to summarize, we delivered a solid financial performance with growth in sales, market share and gross margin against a challenging macroeconomic backdrop. We mitigated the impact of inflation, invested in the business and held profits flat. Our free cash flow generation was strong, allowing for that investment and increased ordinary dividend, and we paid a special dividend in the year. Q1 trading has been mixed so far with the start of the quarter significantly impacted by the extremely hot weather. However, more recently, with cooler weather and wetter weather, performance has normalized.

I'll now hand back to Clo to close this presentation. Thank you very much for now.

Thanks a million Karen. So that brings FY '26 to a close, but we are very excited today to be sharing in our strategy session our customer-led plan to unlock the growth we know we can capture and is summarized by our ambition to Win Hearts & Homes. We'll do this by becoming the homeware specialist with something for everyone, delivering seamless omnichannel experiences that customers love and transforming our capabilities to drive sustainable growth. And as we do this, we will make our business bigger, better and bolder going forward. Thanks a million.

Good. So welcome to Dunelm's interim results. I know I've met many of you before, but for those who haven't, I'm Clo Moriarty, and I joined us 4 months ago, having spent 15 years with Sainsbury's and almost a decade with Bain before that. Now over the last 4 months, it has been tremendous to validate for myself all the things that I believe to be true about this business. And I've been able to do that through a deep onboarding. Now having visited almost 60 of our shops and many of our logistics sites, engaged with our dedicated partners and of course, spent time with our teams in the center.

And look, this really is a beautiful business, right? We are product-centric with something for everyone, carefully crafted with our long-standing suppliers across that end-to-end supply chain. This is a business that really understands the role of the physical store, but how it can be complemented with the role of digital. And it also has something that is really difficult to build from scratch. We have colleagues who really care. And all of that is in service of our customers. Now over the course of this morning, between Karen and I, we're going to walk through our H1 results, many of which have already been well trailed. Thank you for all of your questions and some provocations post our trading statement.

What we've endeavored to do is actually weave the answers to those questions through our presentation and to keep us all in check, but we have plenty of time in Q&A if there's anything that we don't cover. And then uniquely on this occasion, given that it has been a number of months I'd love to share my initial reflections on where I and we see the opportunities for now and for all the years to come. A word of warning, this is not a Capital Markets Day under cover, right? This is a data share of those insights for us to be able to bring it to life.

So let's start with the half that was. We demonstrated a very solid H1 start to this financial year with 3.6% growth year-on-year. It very much was a half of 2 quarters with strong growth of 6.2% in the first quarter and softer growth of 1.6% in the second quarter from which we're now rebounding. But our strong focus on our gross margin demonstrated further margin enhancement of 60 bps, now up to 53.4%. And we have consolidated our market share position, again, up a further 0.2 percentage points, now at 7.9% market share. Now we have endeavored through this transition to ensure that we've kept all of our measures and metrics really consistent to enable you to best follow our business.

But today, we are introducing one additional measure for the purpose of this session, and that's all around the customer, CSAT customer satisfaction. And from a really strong base, and I wouldn't expect to see this level of increase year-on-year given the base, we have demonstrated a 2.6 percentage point increase, which really reflects the focus that this team and this business is putting on our customers and noting that our customers are noticing.

As well trailed in our trading statement, Karen will go into a lot more detail, I promise, and on our GBP 114 million outturn and particularly around the phasing of our costs. But we've also had very strong cash flow. So free cash flow of GBP 171 million, which is relatively stable year-on-year. Now in this business, we have a very clear capital allocations policy and one that I really buy into. And it is as a result of that, that we're able to share our interim dividend and also announce our special dividend for this financial year.

So let's get into a bit more detail on the growth from the half. So we demonstrated 3.6% year-on-year growth over the half in what was a relatively subdued market. But worthy of note is actually the shape of our business. So as I look across our total year-on-year sales from year-to-year, that's broadly consistent, but we do see variances between the quarters. And that's driven by seasonality. It's driven by discounting and it's driven by eventing. And we do typically see a lower Q2. Some of that is external. Some of that is a choice as to how we run our business. But we do want to spend a little bit more time on Q2 this time around because it still was softer than we anticipated.

We know that consumer confidence has remained very subdued, and has done so now for a number of quarters. So every single penny or pound that a customer spends is hard earned. Equally, through this period of time, we saw much deeper levels of discounting and the discounting lasting for longer. This is an area that we chose to not further engage in, and that did impact our participation.

And lastly, as again, trailed in our trading statement, whereas furniture has been providing tailwinds for us over the last number of quarters, it didn't fare well in this environment. And part of that was driven by a miss on our side from an availability standpoint. We introduced a new system and it didn't forecast for the demand that we saw later in the year. Now I'm going to go pains to labor that when we introduced F&R, so our forecasting and replan tool. And we rolled it out across the different categories, it is performing exceptionally well for us. It is driving up availability and it's driving down stock holding, exactly what we wanted to do. It didn't work as effectively in furniture. Lessons learned. We've embedded those learnings and moved on. And in the spirit of moving on, we are confident for the half to come.

So we've started the year with a strong sale, and it was great to see our customers buy into that event, buy into Dunelm and buy into our products. And for the record, the highest selling item yet again was Dorma Full Forever pillows. So if you haven't got one, this is basically the U.K. market telling you that you should. We equally took a good bit of time focusing on newness, right, those full price sales. And we could see our customers engage in those products. So we are bang on expectations when we look at all of those new season lines.

And lastly, there was a bit of a soft launch pre-Christmas. There were 130,000 customers who managed to find our app and download it organically and have continued to do so. But at the end of this month, we will have our official customer launch of the Dunelm app. And whilst it's -- we're relatively late, we'll acknowledge that to the digital space. We are seeing really high levels of engagement with these early adopters and in particular, around the basket building and the basket size. So more on that later, but before we go into that detail, I'm going to hand over to Karen to take us through the numbers for the half. Karen?

A seamless change here.

A seamless change here, yes. So really nice to see everyone today, nice full room here. Thank you for taking the time to join us. As usual, I'm going to start with a summary of the half year financial results and then take you through our financial performance in more detail, as Clo said. We grew the business over the 6 months and continue to take market share despite some periods of softer sales in Q2. Our gross margin was strong at 53.4%, up 60 basis points year-on-year. Our net operating costs were higher this half as previously flagged, driven by the relative balance of investment, productivities and inflation with some phasing of costs into H1 rather than H2.

We expect the year-on-year increase in costs to moderate significantly in H2. Profit before tax of GBP 114 million was GBP 9 million lower than last year, primarily due to operating cost dynamics, which I will explain in more detail. Our cash generation remains strong. We're reporting a headline free cash flow of GBP 171 million and a half year net cash position of GBP 13 million. Similar to this time last year, these figures included a temporary favorable timing variance on payables of GBP 93 million, which cleared very shortly after the end of the reporting period.

With healthy cash generation and confidence in our business prospects, the Board has declared an interim ordinary dividend of 17p per share, up 3% year-on-year and we're also announcing another special dividend of 25p per share. We had a solid overall first half of trading with sales up by 3.6% to GBP 926 million. Year-on-year, our digital participation increased by 2 percentage points to 41%. Quarter 1 sales were strong and grew at more than 6%, but we were disappointed with the Q2 performance of 1.6% growth with external data pointing to the end of the quarter being particularly challenging for U.K. retail.

Sales growth was driven by core categories, from heritage areas like soft textiles to newer areas of specialism such as lighting. However, as Clo explained, in furniture as well as macro pressures and while several subcategories performed well, we had availability issues of some key product lines. This was caused by challenges in how we managed forecasting and ordering, where we had a lot of newness.

The issue has now been resolved and availability has significantly improved. Across the half, we saw growth in average item values driven by product and category mix while volumes were broadly flat. We expanded gross margin percentage by 60 basis points year-on-year to 53.4%, with the upside mainly driven by favorable foreign exchange rates. We kept retail prices broadly stable. We were disciplined on promotional activity, and we managed input costs closely. We expect a foreign exchange tailwind to continue over the remainder of the year.

It is important for me to explain how the profile of our operating costs will work across the year. In H1, net operating cost of GBP 375 million were GBP 32 million higher year-on-year. In the first half of this year, our operating cost base increased through a combination of volume-driven cost growth, inflation and investment, partly offset with productivity gains. Volume-related growth of GBP 11 million related to the variable costs associated with digital sales, so that's logistics and performance marketing costs. The pressure on costs in the retail environment is well documented.

Sales, marketing and distribution costs are the most impacted by the hourly wage rate inflation to national living wage and national insurance contribution increases. Aside from this, we're tightly managing inflation in our nonlabor cost base to limit the overall impact to GBP 11 million versus this time last year or just over 3% on the total operating cost base. We're reporting an incremental GBP 9 million of investment in the business in H1. This was driven by the full impact of costs associated with the new store opened in H2 of the prior year, and that's including the cost of our store openings in Ireland. As you can see, we offset some of the cost growth in the half with productivity benefits amounting to GBP 6 million.

These came from further optimization of performance marketing and from work on store and other labor costs, and the latter included some of the early benefits from the rollout of self-serve checkouts. Our other items totaling GBP 7 million contributed to the H1 year-on-year increase in costs. So we'll always have some other year-on-year cost ups and downs in any time period. And in H1, the biggest of these were year-on-year cost increases relating to share-based payments, including the CEO buyout cost and a pull forward of brand marketing from H2 into H1.

We continue to balance inflationary pressures alongside our investment plans, all the while ensuring that we continue to deliver productivity gains. And now here, you can see how we expect costs to moderate significantly in the second half of the year by looking at the relative year-on-year movements in the blocks of spend that I've described for the first half of the year. So we still expect to see volume growth in costs in line with sales channel mix and inflation will continue to be driven by labor costs, but we expect this to have peaked in H1, and we expect a lower national living wage increase in April 2026, which will impact our Q4 costs.

Whilst we continue to invest investment spend growth will be lower in H2, largely because we have -- we started to incur new store-related costs in H2 last year, and therefore, they've annualized. Our productivity gains will accelerate in H2 primarily as we deliver more benefits from work on our operating models, including further gains from the rollout of self-serve checkouts and also as we continue to deliver our efficiency gains in performance marketing. And in H2, we expect a reduction in other items year-on-year. And that's including the relative benefit from the phasing of the brand advertising pulled forward into the first half and a small benefit in business rates.

Reflecting the softer trading in Q2 and the timing of certain costs, PBT of GBP 114 million declined by GBP 9 million year-on-year. Higher gross profit was more than offset by the cost profile that I've just explained, and this results in a reduction in EPS from 45p to 41.7p. Our effective tax rate of 25.6% was stable and within our guidance of 50 to 100 basis points above the headline rate of tax. We're confident that our plans for the second half, including those on costs will result in a PBT for the full year in line with consensus expectations.

Cash generation remained strong in the half, with a 65% conversion ratio. As I explained upfront, we're reporting a headline free cash flow of GBP 171.4 million. However, the same as last year, this includes a timing difference in working capital, which created a very temporary inflow of GBP 93 million due to supplier payments in transit at the end of the period, which cleared on the second day of H2.

Again, there was nothing unusual about the payments. There were normal course of business payments to suppliers and for services and the impact is neutral over the full year. Inventory was well controlled, and we ended the half with inventory levels consistent with the prior year. Total CapEx in H1 of GBP 23.2 million was materially lower than the prior year, which included a freehold store purchase.

This year's first half CapEx spend primarily relates to store estate spend, including a regular program of refits, small works and decarbonization activity. CapEx also includes spend associated with self-checkout rollout and capitalized tech spend, including the app. We were pleased to reopen our Yeovil store, which had been closed since the end of August '24 due to fire damage, and we also opened our second in the London store in Wandsworth and it's trading well.

Store openings have been slow this year, and 2 stores will likely now open early in FY '27, but our pipeline for FY '27 is stronger, and we see plenty of opportunity for future store openings to drive growth, and Clo will give more color on this. We ended the period with a headline net cash position of GBP 13 million, equating to an underlying net debt position of about GBP 80 million after adjusting for the payments which cleared just after the period end. We have a capital allocation methodology that states that after prioritizing investments in the business for growth, we will return surplus cash to shareholders.

And in this half, we're continuing our strong track record of shareholder returns. With confidence in the prospects of the business, the Board has declared an interim ordinary dividend of 17p per share, up 3% year-on-year. Although the underlying net debt-to-EBITDA position at the end of the period was within policy range at 0.3x, the ratio was outside of the range at the end of most months in the period, and the Board has therefore declared a special dividend of 25p per share. And this morning, we also announced one of our periodic intentions to buy back up to 1.6 million shares to satisfy the requirements of employee share option schemes.

So I'll finish by summarizing the outlook and guidance for FY '26. We've been encouraged with trading in the early part of quarter 3. Customers responded well to our winter sale and sales growth to date has been similar to the overall growth for H1. We're working hard on mitigating inflationary pressures, especially wage inflation with value-creating initiatives. We're therefore confident in our plans to deliver full year PBT in line with market consensus. We expect our effective tax rate to be 50 to 100 basis points above the headline rate of corporation tax. And from a cash perspective, we expect a broadly neutral working capital position at the end of the year. And we're reducing our CapEx guidance to around GBP 40 million this year down from our previous view of about GBP 50 million, and that reflects the timing of new store openings.

So thank you for your attention. And I will now pass back to Clo.

Thank you. Okay. So this really is a brilliant business, right? And over the last period of time, as I've been meeting with some of you and others, that's what also you've been telling me, right? There is lots to like about Dunelm. And I agree, okay? So what we're going to do over the next 10 minutes is talk through 6 of the data-driven insights that we as a team are now using to build the strategic evolution over the coming weeks, months and years. And as we should, let's start with customers. So we have universal appeal. And we're not going to shy away from that.

So as I look at our customer base, our customer base broadly reflects the U.K. population. Here at Dunelm, we have something for everyone. And we have really high levels of awareness. So the U.K. customer knows who we are. But when I look at the consideration to buy, that drops off. Now there's nothing massive here, right? That's totally in line with benchmarks. It's absolutely in line with averages, but as the market leader, I and we do expect more. And then secondly, when I think about where we stand out for customers and we do, there are equally opportunities for us to grow. So what you're looking at on the right-hand side, across the top are a subset our categories and our subcats. And from top to bottom, we're looking at the key buying factors, so these are the factors that customers consider when they're picking where to buy and what to buy, and they're ranked in order of importance.

And as you can see, Dunelm is #1 across many of them, but not across all. So we can see a real opportunity for us to match the perception with the true reality of what we offer. And this week, we announced externally that we're bringing in some new capability into Dunelm to be able to supercharge this. So I'm thrilled that Laura Harricks will be joining us as our Chief Customer Officer. And when she joins us in a couple of weeks at the beginning of March, Her two key priorities are going to be around our brand positioning and moving the dial on that perception.

We also have deeply loyal customers, right? And those loyal customers are on a growing customer base. But critically, we understand those customers better and hence, we're able to respond to their needs. So now recognizing that 1/3 of our customers make up 2/3 of our sales. But even for those most loyal customers, we still only capture 15% of their homewares wallet. So there is so much more headroom for us.

And as we think about how we do that, it is about the connection. It is about the contact, and it is about the personalization. So over the last quarter, we have been trialing these omnichannel communications and incentives. And we trialed them in-store and online. And we're seeing across the board, high levels of incrementality with an opportunity given we've got relatively low redemption rates. But whether it is in-store or online, we are seeing a mix of basket build or frequency. So over the coming trading periods, we're going to take those learnings and make them even more personalized.

And we all know this that our products at Dunelm are just brilliant. And in any given year, we've got over 100,000 items live for our customers. One of the things that we're really proud of is our product brand as Dunelm. So we've now got about 70% of our products going out the door under the Dunelm brand. But there's more that we can do to help our customers understand our good, better and best. Because when I look at the packaging across some of those ranges, sometimes it's hard to distinguish. So we're going to create greater clarity so our customers can always opt in to whichever tier works for them.

We'll also be thoughtful of our owned brands and national brands and where they have a role to play. But where they create cost for us as a business or where they create complexity or confusion for a customer, we're going to remove them. And we've already started doing that, and we've already retired now at the start of this financial year, Elements and Edited Life to name 2.

And in this last chart, on the right-hand side really caused us reflection, right, because we are a specialist. And what you should expect for us and will expect for us going forward is that we will continue to have great ranges. We will continue to bring newness to the market. But we're equally going to ensure that each and every one of those SKUs works really hard for us and really hard for customers.

And right now, that half our SKUs contribute most of our sales. So we've got some work to do. But again, we're going to use that insight across our good, better and best to help inform our ranges even more. And I guess, case in point, our starter for 10 is ensuring that all of our best selling lines are in each and every one of our stores. And we're moving fast. But in our lower our smaller stores, we only have 70% of our top-selling SKUs. So we're changing that now, and we'll have that embedded before the end of the financial year.

This is a digital world. We all know that. But even in that digital world and particularly in homewares, the role of the physical really matters, to be able to touch, feel and see product really matters. So we are going to double down our focus on our existing estate because candidly, they're not growing fast enough. But at the same time, in spite of us having access to customers, 15% of the U.K. population can reach us within 15-minute drive. That's high, but it's not high enough. So we're going to go again at our store expansions. We've reappraised the market, so looked at where the demand is, our presence, our competitors presence and ultimately the different formats that we're able to bring to bear. And we can see an even bigger opportunity than we've showcased before.

And lastly, again, as I alluded to earlier, we have come late to digital, but now at 41% participation, we are holding our own. But interestingly for us, we benchmark really highly on many digital journeys and in particular, search engine optimization. But there are still countless opportunities for us to go after, whether that is in the social commerce space or generative engine optimization or the app that we just referred to. When we launched the app at the end of this year -- at the end of this year, at the end of this month, we will be able to bring shop the look, shop the range. We'll be able to bring find your local store, find the products within the store, find the stock within the store. And critically, we'll be able to release products fresh to that market well ahead of any other customer. So again, my call to action is if you haven't downloaded the app, I strongly recommend you download it now.

This is a business that has strong customer satisfaction. Of course, there is always room for improvement. But in addition to the strong customer satisfaction, when we notice something, when we see something, this is a business that can move at pace. So let's take an example of home delivery. We have nationwide reach in home delivery. It is a large and growing part of our estate, so one we need to pay attention to. But when I look at CSAT, so our customer satisfaction, customers who rate us 5 out of 5 on their experience, you can see a meaningful difference between our home delivery 2 person, large items. And our home delivery 1 person, smaller items.

And when we interrogated that further, you could see that a big driver of that CSAT was damages. And of course, everyone here will know the costs associated with damages. Not only the lost sales and the fact that, that customer may not return, but equally, you've high costs associated with the contact center, return of the product, replacement of the product, refund of the product, redelivery of the product and potentially goodwill. So we addressed that. And before Christmas, we've changed our packaging. And now we've already reduced our complaints across the board in 1 person home delivery by 20%. So for a little bit of extra cost in our packaging, we have delivered significant value across the value chain, and we'll expand from there. So my key takeaway for you on this slide is we are going to be obsessed with our customers and what our customers tell us. But we are going to as system owners and as system thinkers follow the value across the value chain, and as such, return value.

And last, but definitely not least, we have great colleagues, 12,500 amazing colleagues with great capabilities. And we've been investing as of others across the front end and back end for a number of years. But you'd expect me to say this. The job is not done. The job in this space will never be done. What we are looking to do is as we make those choices on tech, we're being really thoughtful about moving from best-in-breed to best in suite. So working with fewer, bigger partners, which will make our integrations more seamless and less costly. It will ensure we have access to the biggest and best thinking and us be present on their road maps. And it will also provide more context in our business. So for every penny we're spending, we're ensuring we're getting more impact for that investment. So building capabilities for the future is a big part of the route ahead across people, processes and systems.

So if you ask me, do I think there are strengths and assets in this business? Absolutely. Do I think there are significant opportunities on the back of those existing strengths and opportunities? Absolutely. We've universal appeal, but we're going to maximize that appeal through a clearer brand proposition. We already have really loyal customers, but we're going to engage and delight those customers at each and every opportunity to drive share of their wallet. We know we've got outstanding product choice. We have a big opportunity to be able to use that master brand and ensure we make our amazing ranges more shoppable.

We've got physical and digital reach, but we're going to double down on the existing and ensure that we maximize each and every ounce of that white space. We got great colleagues and platforms. And as a result, we're going to stand on the shoulders of giants and ensure that we are future fit across all. And we have strong customer satisfaction, but ensuring that we unleash the best of what Dunelm has from end-to-end experience, I believe that we're going to be able to drive repeat business, repeat purchases again and again and again.

So we are the market leader. We only have 7.9% market share in a highly fragmented market. There is so much more to go for. As we've discussed, we have lots of assets across customer, across brands, across products, across channels. But each and every one of those assets presents a large and growing opportunity for us. And we have a proven track record of discipline and strong cash generation. And we're not going to move away from that. But we're going to build them up with additional efficiency and productivity opportunities. You might have gathered, I'm out and about a lot. And I'm talking to customers all the time.

But one reflection really stuck with me from a customer. And when I said, Dunelm, what do you think? And they said, Dunelm, it's actually very good. And I agree. We are actually very good. And the job of work for us is to remove that actually sentiment because I do believe the U.K. core opportunity remains compelling, and we are best placed as the market leader to be the home of homes. Thanks, a million.

What we'll do now is hand over to some Q&A. In case you have 1 or 2 questions that you'd like to ask and we'll ensure we cover the most.

Apologies, I missed the point to ceremony. Do you mind mentioning for the webcast, your name and where you come from.

Indeed. John Stevenson from [ Munster ] and from Peel Hunt and both in fact. Two questions to get us going. You sort of mentioned undertaking a review of store. Can you give us a bit more detail on that in terms of how big the opportunity do you think is from a space point of view, the types of store and how quickly you're going to be able to get after that space? And second question, just on customer and personalization sort of use of data and the kind of customer journey.

It feels like it's still very, very early. Can you talk about how early we actually are on that? And looking back in -- I appreciate the Chief Customer Officer hasn't started yet, but looking back in, say, 18 months' time, what would you hope to have achieved from a sort of personalization customer viewpoint and what that sits against best practice?

Brilliant. Okay. Thanks, million. So let's start with the space opportunity, right? And it's twofold. The space opportunity is in our existing estate as well as the white space. And when we think about the existing estate, this is about us looking across our multi-category authority across each of our categories and understanding the right macro and micro space for that to be able to ensure our ranges are more shoppable and more findable, right? So that is one of the big opportunities that we do see. And you can see it reinforced with the SKU efficiency numbers that we shared today. Equally, as we roll out some of those efficiency levers on the walkway and welcome and our self-checkout. We'll be able to repurpose some of the space to ensure it works really hard for us.

So that's one. And we can do that on a rolling basis. The second element of new store space, again, the opportunity for me is we should be 90% of the U.K. population within a 15-minute drive, not 60% of the U.K. population. And what we'll need to do is, of course, look at the demand, and we've got -- you saw the map, right? We've got a sense of the sites that we are going after, but us being really thoughtful about the different formats that we can use that will work better in different locations. And that's kind of the pivot that we'll use for that next stage. Okay?

On your second question around the use of data, yes, you're right, it is early. But actually, our data journey hasn't been -- that's not early. We've been investing in that for a number of years and got a really strong data lake, and we use Snowflake and they are really best-in-class from that perspective. So the job of work is being able to surface all of that data in the most meaningful way to reach our customers. The omnichannel communications was the first sense of it. The next stage will be ensuring that, that drives hyper-personalization and the next best message. But even in the early stages of that data, we saw the incremental behavior. So what does great look like over the next kind of 18 months and beyond, we should see a growing loyalty base in our total customer base.

David Hughes from Shore Capital. First of all, I think coming back to your final point on actually quite good. Obviously a clear difference between awareness and consideration, what do you view as the key factors in terms of bridging that gap? Is it the brand marketing to get people to try them once? Is it the product and the proposition? Where do you think the kind of opportunity is there? And then secondly, just on a technical point, in terms of the CapEx being GBP 10 million lower for this year, would you imagine that, that kind of flows through into next year with those 2 store openings coming at the start of next year?

Thanks, million, David. Well, why don't I take the first 2, and then I'll defer to my learned friend on the right on the third one. So in terms of the first question, this is about brand positioning. It is really important to know who you are and what you stand for. And us acknowledging that we have universal appeal and being really proud of that and ensuring that our journeys reflect it is going to be the next stage of the journey. And we're right. Laura doesn't start for a number of weeks, but we equally have a very strong team in place that is already starting on that work.

In terms of moving the dial, we can see across our kind of customer base, where we have an element of spearfishing, right, very prevalent in the digital world. And our opportunity there is as we see that spearfishing and we delight a customer, using our communications to be able to ensure the repeat purchase. That's the job of work that we've got to work on with that part of our customer base. And when I look at our highly loyal customers who do shop very frequently across most of our ranges, it's continued to improve their repertoire by basket building. So they are the elements that we'll focus on first and foremost. On the CapEx?

On the CapEx. So some of it will flow through to next year, but we're not giving any guidance on what our CapEx in total is going to be for next year, and it's usually a combination of property-related CapEx and then tech-related CapEx, whether that's kind of the hardware or the capitalized labor. We're not changing our medium-term guidance for store rollouts. So even if the pipeline is stronger than we've seen this year, we're still sticking with 5 to 10 openings for next year. But clearly, our guidance for this year started off at 5 to 10, and we've opened 2. So there will be some CapEx that will roll over into next year, primarily related to the 2 that are just on the cusp of this year and next.

It's Georgina Johanan from JPMorgan. Just 3 quick ones from me, please. First of all, just following on from the CapEx question. Clo, given what you were saying about sort of reworking some of the ranges in store and maybe store layouts and so on, is that something where we should actually expect maybe a short-term sort of step-up in CapEx to be able to support that? Or is it actually -- is it quite minimal in terms of execution to do that?

Second, just on the OpEx side. I think in terms of the kind of volume-related costs, you called out that, that was exacerbated by the channel shift. Given the launch in the app and the marketing that's going to go behind that within your guidance, have you accounted for like an incremental or step change in the second half, please?

And then finally, you mentioned about considering changes to Q2 trading and how you're going to trade the business. Presumably, you kind of need to start thinking about that fairly soon. So just any color on what you're thinking about sort of discounting activity or catalyzing the customer in that quarter would be interesting to hear.

Perfect. Thanks a million, George. How about I top and tail and you can do those in the middle.

Yes.

Okay. So from a CapEx and ranges perspective, we already have an opportunity to look at the existing range and within the current master range, make some changes within the good, better and best. Those are things that we can roll in relatively easily. We've got -- I say high -- we have a strong level of churn because we do want to be bringing in newness. So we have very clear windows across our state to be able to make those changes. So I think that's probably the -- in terms of disruption and impact, that's probably the first one. Shall I cover off the Q2 question, and then we can talk about OpEx. So from -- as we look at Q2, you're right, it has historically been consistently a lower level of growth.

Now we have 2 very strong sale windows at Dunelm. Our customers understand those windows and they trade into them. The question that we are asking ourselves is whether they are sufficient or whether we do want to go deeper into Black Friday. If and as we do, we will do it our way with the continued discipline that we manage over the full financial year. So we'll update in due course. But of course, we're considering the trading pattern for next year.

Yes. And just in terms of your OpEx questions, Georgi, in the schematic that we've drawn, the waterfall for the second half of the year, OpEx, we've clearly not put any numbers against the different blocks of costs, but we've tried to sort of shape them in the way that we think that they will come through. And therefore, any incremental spend that we might need on the app, for instance, will be included in the volume-related box there. And we are reiterating or confirming a commitment to a PBT in line with consensus. So that's all factored in. Clearly, at the end of the day, it actually is a function of channel mix and also the number of products that actually go through our logistics operation.

It's Anne Critchlow from Berenberg. I've got two questions, please. The first is on the location opportunities. So I noticed lots of green dots over Central London, for example. And just wondered what do you think of the small urban concept format in terms of the potential to roll it out? And how easy is it to find those sort of smaller stores, which I think are around sort of 5,000 to 7,000 square feet. And then the second one was just an update on the Designers Guild acquisition that you made last year. So just wondering how you might use the design assets in the business in the future?

Brilliant, thanks, a million, Anne. So on the smaller formats, and you'll know we have 2 of our kind of our micro both in Westfield and Wandsworth. They're trading well for us, right, with a very strong trading intensity. And you'll also have seen that we did move on from our Westfield store to our Wandsworth where we actually increased more seasonality and more newness, which did drive further enhancement in sales. So we quite like these and our customers quite like these. So we'll be going after more of them. So the green dots, that's exactly what it's about.

And then on Designers Guild, as we look about the ranges, and we're looking at the range architecture, it has a clear role to play for us when we think about best, right? It is something that does stand out. And while we're embedding that into our thinking, it does, in the meantime, continue to contribute royalties to our business on an ongoing basis. Do you have any?

No, I think that's perfect.

It's Tim Ramskill from Bank of America. I've got 3 questions, please. We've already spent a little bit of time talking about the space opportunity, but Karen was very keen to point out it's 5% to 10%, it's not changing. So but just help us out a little bit, kind of give us a sense for -- Clo, you talked about it's not being quick enough. So what would quick enough look like perhaps with the number to go alongside that.

Second question around gross margin, where clearly the FX dynamics have been helpful. I think that's looking set to continue. But maybe just some early sense as to -- I also think that might well continue into 2027. So kind of maybe give you the chance to dissuade me from that perspective.

And then the third question was, again, an extension of the conversation around Black Friday and discounting. Maybe just interested to hear your thoughts on which categories in particular that seems to be sort of sharpest in, in terms of what your competitors are doing. And then I guess just on the same topic, it's fair to observe that discounting has definitely moved away from being a twice a year type event to an almost ever present. So is this just about Black Friday? Or is it about -- are there other things to think about through the course of the calendar year?

Brilliant. Thanks a million, Tim. I'll take the first. Karen will take the second, and then we'll tag team on the third, okay? So in terms of the space, we're not moving away from the 5% to 10% guidance. However, we will explore as many opportunities that come our way in the disciplined way that we always have done. It's not -- on the quick enough point there are going to be stronger years and they're going to be slower years, right? So I think the way I would think about this is balancing it over time. What we are seeing though is the opportunity that we would have shared at kind of the IPO and beyond. It would be 50 plus. And I think our message today is and then some. That's probably the key message. On gross margin?

On gross margin, yes, we flagged in the half that we've reported on, the upside is largely driven by foreign exchange tailwind. And Tim, I'm not going to try to dissuade you that some of this will continue into 2027 because we hedge out over quite a long period, and we're already hedged for some, but not all of 2027. We'd just emphasize that FX is only one element of what goes into cost of sales, and we need to think about the cost of raw materials, the cost of freight, how much factory capacity there is. Things like the inflation rate in the U.K. where we're buying from U.K. suppliers. And then also, actually, we like to have the flexibility to do the right kind of eventing to appeal to our customers. So you kind of put all of that in a package, and I'm saying, yes, on the FX. And we'll see how the other things play out over time.

And then on Black Friday. So areas where we definitely saw a deep discounting. It was across all categories, right? We saw a deep discounting in furniture, right? You saw deep discounting in electricals, right? We could see that across the board. But when we think about how we respond to that, we do have those 2 sales windows that are actively participated in. All the time we are using our walkway to be able to showcase the best of deals while still having our zones to be able to give the best of the entire selection. And I think that is one of our advantages, having moved from market stall to market leader, never lose the market stall element, right? So our customers know that when they come into our shops, they will always be able to find some deals.

We want to make sure that we are not buying sales. Our sales have to be profitable and you saw the rather garish detail with some of the discounting that Clo showed that had been going on through that Black Friday period. And some of that, frankly, we just didn't want to indulge in. It's not right for the long-term profitability of the business.

Yes. We're not buying share. I think that's fair -- balance and everything.

I'm not sure if this microphone is working?

Yes, working Ben. Yes.

You've obviously held guidance today. And it seems to me that you've got some pretty significant reduction of that second half OpEx to hit that guidance, assuming your sales growth trends in line with, as you say, that H1. I suppose my question is you've had a lot of productivity over the last 2, 3 years anyway. Is there a worry here that we're beginning to cut into the muscle? You've also sort of mentioned there's some marketing spend brought forward. To what extent is this going to start to maybe impact the top line if we carry on having to take some of that cost down?

Okay. So just the first point is that the second half is about moderating the rate of increase in the cost base. We're not saying that we're going to reduce and it's really important to look at these buckets one by one because they all have different dynamics attached to them, including the fact that we expect to get more productivity in the second half of the year than we got in the first half of the year, and that's due to the timing of some of the productivity rollout plans, for instance, the self-serve checkouts, where by the end of this year, we'll have self-serve checkouts in more than 100 stores.

Absolutely, we do not intend to cut into the muscle of the business. You'll have heard me speak before about the fact that when it comes to investment, I don't like putting my foot sharply on the accelerator and then slamming on the brake. We like a nice rhythm of investment and the same thing about productivity. So when we think about productivities, we almost have 2 streams of productivity going. We've got what we call continuous improvement, which every responsible manager in the business has a responsibility to deliver by really being focused on their cost base. And if they do need to invest a bit in continuous improvement, that has a fast return. And then more recently, we started to take a more programmatic approach.

So investing things that might take a little bit longer to deliver a return on. I'd say we've got lots of opportunity still to go for, which is healthy opportunity and will be sustainable in terms of the productivity that it's delivering. Close example about changing the way that we're wrapping products so that you reduce damages is just one of the things that we can do. And on that particular example, it's important to take a holistic approach to what you're seeing. So if we just looked at the cost of packaging, we might not have taken this move. You've got to look at the cost of packaging relative to the other costs that you incur, if you create customer dissatisfaction.

I think we've also spoken about the fact that our business isn't very automated. Now that comes from the customer touching parts of the business or engaging parts of the business, that's why we decided that we would roll out self-service checkouts. The business case for that became really clear when the cost of labor got so high. We don't have a lot of automation in our supply chain. We've got things like auto bagging but we've not gone much further than that. And I also think about automation when I'm thinking about processes, and we've still got a lot of processes that we can bring to system. So again, automation, more efficient -- more effective use of data. So I could go on for a while, probably best to stop there.

But what I think you can take away is we don't believe we're anywhere near cutting into muscle. We're honing the muscle. That's what we're at now and shifting away from this way of thinking to system-wide thinking.

Richard Chamberlain, RBC. Just 3 quick ones from me, if that's okay. So you talked at the beginning of the presentation about your lessons learned from the furniture availability issues. And what are you referring to specifically there? Is that around [indiscernible]?

And then the second one is, maybe you can just touch on how you created the efficiency performance marketing under the terms [indiscernible]? And then finally maybe give some update on Ireland on the stores there and your plans to upsize and just general on international -- thoughts on international growth?

All right. Thanks a million, Richard. So in terms of lessons learned, so with furniture, we rolled out a new system. We rolled it out systematically across each of our categories. When there was a high level of newness, the system that we have learns from previous data. When you don't have previous data, it pulls on some lookie-likies to be able to define what the demand should be. Those input signals weren't good enough. The second chance to catch it was to use all of our internal expertise to sense check, does that look and feel right? And we moved in the system of trust the system and the rest will follow rather than challenging what the outputs were.

So our 2 big learnings were check the inputs to make sure we're really confident. Check the outputs to make sure we're really confident. And if you're confident on those two things, then absolutely let the system fly. And that's what we've embedded now going forward. And you can see with furniture, we've already seen a recovery. We're now north of kind of 95% availability. So we've got that in place, okay? On performance marketing...

Efficiency in performance marketing. We've been improving efficiency of performance marketing for a few years now, that kind of started off by developing capability in the organization. So investing in people. And then as these people become more confident and competent working within some quite strict guidelines around returns on performance marketing expenditure that's where you get the efficiency. So when we talk about efficiency, we don't say we're trying to reduce the overall quantum of the performance marketing spend because we will spend it where we think we're going to get the best return.

Okay. And do you want to start on Ireland?

On Ireland, Yes, I was just jotting down the things that we've done so far on Ireland, still in a relatively short space of time. So we've rebranded. We've refitted some of our stores. We are successively bringing more Dunelm branded product into those stores, and we're getting a nice response from customers. Still a lot to do because it is early days. And one of the nice things about Ireland is that it's going to inform the learning that we will take to some of these green dots on the map because the Irish stores are actually quite small compared with the rest of our portfolio. So getting them really humming is important so that then we can just take that and do it in other places.

There are many nice things about Ireland.

I don't know why you gave that question to me.

Just a few questions for me because quite a few of them were already taken. But just a little bit -- maybe a little bit of color around the competitive landscape and anything that you've noticed since taking on the role 4 months ago. Obviously, there's a [indiscernible] looking at some of the SKUs as well. If there are certain SKUs that maybe they're shopping over here, but you could take a few -- had a few more available over Dunelm, would that be more helpful. What have you noticed?

Yes. Look, I mean I think the big thing about the competitive landscape is because we have universal appeal and because we are a market leader, every other entity is a competitor, and that's how we're treating them. So with a double-down of focus on the physical and complementing it with the digital, we believe we're going to be able to address all parts of the market.

And I think Clo gave some examples that show that we can respond in what is quite a challenging competitive environment, not by -- not just by taking from others, but by helping ourselves. So the example of having our best sellers in all of our stores is an example where people will come to us if we got the best sellers in the store.

Charles Allen from Bloomberg Intelligence. The percentage of sales that are digital keeps on going up. Do you see a limit to that number? And obviously, also it means that the amount of cash gross profit you're generating just from in-store sales is either flat or going down unless you can improve the rate of sales growth there. So what does -- does that mean that you have to constantly improve gross margin to keep the store operating profit moving ahead?

Okay. So I am very happy for the digital percentage to keep growing, but I'm much happier if the total pie grows bigger, right? So we are an omnichannel business, and therefore, the role of walk-in, the role of Click & Collect and the role of home delivery play different roles for different customer bases. When we report and when we report in our sales, we typically talk about walk-in. But Click & Collect is a huge footfall driver for us into our stores. And as that continues to increase, it continues to bring more and more customers in.

And we've got a very clear halo impact of every customer who's coming in, the impact it has on what else they pick up because you can't help with the inspired, right, when you walk around our shops. So you do see that halo impact as a result of the digital meeting the physical. So we'll continue with an overall omnichannel approach, because that's going to give us the best returns across the full channels.

And with omnichannel approach, we're not compromising profitability because both channels are profitable. We're quite agnostic as to where and how our shoppers want to shop.

Follow up is what's the relative cost base in each of the channels?

Well, we haven't actually disclosed what the relative cost base is. They've got different dynamics, which was one of the reasons why when we were talking about the cost profile for H2, I was pulling out some costs that sit below the gross margin, but which are costs that will vary more with digital sales than they will with store sales. So we've clearly got -- about 40% of our cost is labor cost, and that primarily comes from our stores -- the cost of our store colleagues and the cost of colleagues in distribution centers. There's much less labor that's attached to a digital sale, but it gets logistics costs and it gets performance marketing costs.

I'm getting a very clear signal from the back, which says there's time for one more question. Did I read that right, James.

Richard Taylor from Barclays. Just interested to hear if you're seeing the way in which consumers are searching for Dunelm or the homewares market in general, whether it started to change. I hear your comments about SEO performing well, but social less so in generative engine sort of watch this space. But yes, keen to hear thoughts about how quickly you can prepare Dunelm for changes and how consumers may search and purchase and whether you feel you are currently losing out to many others who are more advanced in those areas?

Yes, super question. So firstly, on social, I don't think it's underperforming. I just think we haven't pushed it yet, but yet being the operative word because that's where we'll go, that's where we'll go next. It's really critical that we show up where customers are rather than expecting them to come to us. And that's a big shift. But specifically on SEO, the brilliant thing about SEO is we are benchmarking very highly on search engine optimization. To do that, your data integrity and how you surface that data has to be exceptional. And those are the ground routes for every form of GEO-type shopping. If you have your data right, then whoever or whatever is searching or browsing your site, we'll be able to find the best of what's there. So we actually believe, whilst we're not exploiting generative engine optimization yet, we've got all the foundations in place to be able to do that rapid fire.

Well, thank you very much. I appreciate all the questions, all the energy and looking forward to seeing you all again very soon. Take care. Thank you.

Thank you.

So good morning, and an emotional welcome to the Dunelm prelims presentation covering our financial year to the end of June. My name is Nick Wilkinson. And Alison Brittain, Karen Witts and I are delighted to welcome you to the offices of Peel Hunt in London in what is my last results presentation. Whether you are here in person or joining virtually, I hope you're well, and thank you for your interest in the continuing story of Dunelm.

It's our normal running order. I'll introduce the highlights. Karen will then go through the FY '25 financials and our guidance, and I'll be back to share more on our plans as we carry on growing Dunelm as the U.K.'s home of homes. So with images from our autumn/winter product collections, we'll get started. Our full year results show strong performance as we again successfully balanced growth and grip. Sales up by 3.8%, were ahead of the market, which was up only slightly, and we continue to move towards our next market share milestone of 10%.

As reported by global data, our combined share now stands at 7.9%, which is up by 20 basis points on the prior year. The balance of our sales growth was particularly broad-based from a customer point of view, by which I mean we saw both higher volumes and higher average item values this year. Last year, we only saw higher volumes and not higher AIVs. And we saw both higher frequency as well as more active customers, which grew by 80 bps on the prior year.

And in terms of grip, a strong gross margin and profit before tax of GBP 211 million reflects the strength of our operating model in a cost environment which is more challenging than we expected this time last year. And in a year when digital channel grew significantly, there's particularly good grip on digital profit levers. Operating cash flow was strong, supporting a higher than normal for us level of capital investment and therefore, good free cash flows. We've announced this morning an increased total ordinary dividend for the year of 44.5p.

Alongside this is the continued development of our business, and FY '25 saw a number of firsts, our first store serving in London customers, our first sales outside of the U.K. with the acquisition of a third-generation family business, selling home textiles through a national network of small stores in Ireland. And we built in-house production for the first time in the Midlands for made-to-measure Venetians, roller blinds and shutters.

All of these moves, along with getting to know the Designers Guild business, whose brand and IP we also acquired bring us new capabilities and new opportunities. These are seeds for future development, and many of them are complementary, coming together already in our Made-to-Measure business, which grew by 1/3 last year.

Our nonfinancial highlights demonstrate our commitment to growing sustainably making good decisions for all of our stakeholders, doing the right thing for the long term is in our DNA from our founders. But make no mistake, these are areas where we're looking to create value. So while regulatory and consumer expectations may shift and fragment, we are clear sighted on our goals. In terms of reducing our impact on the planet, we relish the innovation opportunity that new materials and technology bring.

We've made good progress in the year on Scope 1 carbon reduction and in reducing plastic packaging, but Scope 3, that's the impact of the products we design and source and our customers' use of them, Scope 3 progress is more challenging. We're sourcing lower impact materials, but there is more work to do at all tiers of the supply chain to measure and reduce both carbon and water consumption. It's also been a meaningful year for our role in communities. Being a good neighbor is not difficult, but it's not something that every business does.

We've got 1.4 million Facebook followers on our store community pages, up 15% year-on-year, and they've helped us to organize campaigns to connect generous customers with great local causes. Alongside all of this, our national charity partnership with AgeUK is thriving. And with our colleagues, higher levels of retention and engagement, the start of progress on developing more leaders from ethnic minority backgrounds and increasing opportunities for colleagues to access lifelong training and personal development.

A particular thank you, therefore, to all my colleagues listening today for everything you do to adapt and develop and to grow yourselves and thereby our business. And now over to Karen to walk you through the financials.

Thank you, Nick, and good morning, everybody. So, as usual, I'll start with a summary of our full year financial results, then I'll take you through our financial performance in more detail. This time around, I've included a schedule that sets out how we are thinking about costs, both the input costs that sit within gross margin and our operating costs to show how we also think about sustainably managing PBT margin.

And then for completeness, I'll conclude with our guidance and our outlook for the year, and then I'll hand back over to Nick to focus on our strategic progress. We're very pleased to be reporting another good set of results, demonstrating ongoing progress and growth in a market that continues to be challenging. We grew sales in the year by 3.8% to GBP 1.8 million. We saw stronger growth in H2 than we did in the first half of the year, but we're not yet calling out a consumer recovery.

Our sales were high quality, meaning that they were driven by a combination of volume and a higher average item value from product and category mix. We held retail prices largely stable over the year, absorbing most of the impact of high inflation in our cost base rather than passing it on to customers, and we were disciplined around promotional activity. This, in combination with strong operational cost grip drove a very strong gross margin of 52.4%, up 60 basis points year-on-year. Delivering with grip remains important as input costs continue to rise, particularly those driven by labor cost inflation.

We're balancing these inflationary pressures by ensuring that we deliver more efficiencies. And at the same time, we believe in continued careful investment to sustain both short- and long-term growth. Profit before tax of GBP 211 million grew by 2.7% in the year with slightly higher earnings per share growth of 3.2%, reflecting the normalization of our effective tax rate after a once-off adverse impact last year. Our PBT margin remained broadly stable year-on-year at 11.9%. Cash generation remains strong.

Operating cash flow was up 10% year-on-year with full year free cash flows of GBP 127 million after an increased level of CapEx. We ended the year with net debt of GBP 102 million, with a net debt-to-EBITDA ratio of 0.3x, comfortably within our target range of 0.2 to 0.6x. With healthy cash generation and ongoing confidence in our business model and prospects, the Board has declared a final ordinary dividend of 28p, taking the total ordinary dividend to 44.5p per share, up 2.3% year-on-year.

We also paid a special dividend of 35p per share in April. So that takes our total declared distribution to shareholders in the year to 79.5p per share. This next slide sets out how our sales growth was delivered through broad-based growth in active customers with increased average item value, not driven by price increases and slightly higher frequency, resulting in another year of market share gains.

As I said, we were pleased with the quality of our sales, which were delivered with a focus on bringing more of our ranges more conveniently to more of our customers, all while maintaining our outstanding value proposition and our focus on our good, better and best price quality tiers. Digital sales participation increased by 3 percentage points year-on-year and now makes up 40% of our total sales, reflecting the success of our ongoing efforts to improve our customers' digital experience.

As a reminder, digital sales include Click & Collect sales, which are ordered online and fulfilled in store and which grew very strongly in the year, up by around 30% as we expanded the number of products available for in-store collection. As we reached more customers with our proposition, we grew our active base by 80 basis points. We saw particularly strong growth in our 16- to 24-year-old younger consumer cohort, and we grew well in the London region, where we opened our first inner London store in the year with another to be opened in quarter 2 in Wandsworth, Southwest London.

We gained 20 basis points of market share year-on-year and now have 7.9% share of the U.K. market that grew only slightly. So we're still confident in reaching our medium-term market share milestones of 10%. As well as sales growth, we delivered further gross margin expansion with gross margin up by 60 basis points year-on-year. We have maintained our outstanding value proposition and kept retail prices broadly stable, understanding that most of our customers are feeling the impact of macroeconomic pressures.

We've been disciplined around our approach to promotional activity in order to underpin the quality of sales growth. And we had a good quarter 4 when an early start to the summer season helped us to deliver a strong performance on seasonal sell-through and full price sales throughout our summer sale period. Freight costs and the impact of FX were broadly stable across the year, although towards the end of the year, we began to see a slightly favorable impact from foreign exchange. We expect a small overall net gain from freight and FX in FY '26.

And as ever, we will keep optionality over pricing in order to deliver the right combination of value growth and profitability to our various stakeholders. The pressure on costs in the retail environment is well documented. Our operating cost base grew through a combination of volume-driven cost growth, inflation and investment, partly offset with efficiency and productivity gains. Volume increased variable costs by GBP 18 million.

This related particularly to those costs associated with digital sales, including Click & Collect expansion and 2-person delivery related to strong furniture sales. We've had to deal with more than GBP 20 million of inflation, which is around 3% on our operating cost base, with most of this coming from increases in the national living wage and some from the national insurance contribution threshold and contribution increases in quarter 4, which will fully impact in FY '26.

Because of this, we've worked hard on accelerating productivity gains, largely through what we call continuous improvement initiatives. including the efficient management of our performance marketing spend, optimizing our store operating model and making improvements to our supply chain operations, for example, by improving internal processes around returns. In total, we delivered GBP 22 million of productivities to help offset inflation and to limit the impact on our overall cost to sales ratio. We believe in an ongoing drumbeat of investment to realize opportunities for growth and efficiency.

The incremental investment activity we expensed in the last year was focused on new store openings, further investments in made-to-measure capability, improving digital search capability and costs associated with acquisitions. As we're talking about costs, this is where I thought it might be helpful to describe how we think about them to show the various characteristics of costs in our business model and to give our current view of the direction of these costs over the next 12 months.

As a management team, we think about all of our costs, whether they're reported in our gross margin or through operating costs. We like to live our value of acting like owners, and therefore, we make every pound count. Our focus is on delivering a broadly stable PBT margin over time rather than guiding specifically to gross margin as we think this better suits the evolving nature of our business. Our reported gross margin will continue to be strong, but we won't be guiding to it.

Our costs can be impacted by external factors like freight, foreign exchange, raw materials and inflation, where we have limited direct control, but where we can create a degree of cost certainty through, for example, freight agreements or our hedging activity. We can also mitigate cost increases by using P&L levers like pricing and promotions and by making sourcing decisions. And we invest with regard to the balance of growth initiatives to productivity drivers.

As we start FY '26, we believe that freight and FX will give us a small net tailwind. We see relatively stable raw material cost impacts at least for the first half of the year, but we will need to work hard to deliver efficiencies to help offset the impact of another 3% to 4% of inflation across our cost base. This is largely driven by the National Living Wage and National Insurance contribution increases.

Continued sales growth will come with associated variable costs. These costs depend on where the growth comes from. So store labor costs, logistics costs and performance marketing costs will vary depending on sales by channel and product category. Across these various moving parts, we have flexibility in our P&L to make choices and to manage profitability to a broadly stable PBT margin. Profit before tax of GBP 211 million grew 2.7% year-on-year, while our PBT margin of 11.9% was broadly stable year-on-year.

You will see that our effective tax rate of 25.9% is back within our guidance of 50 to 100 basis points above the headline rate of tax as FY '24 was impacted by a one-off tax -- deferred tax adjustment. And this has had a positive effect on diluted earnings per share, which grew by 3.2% to 76.8p. Our operating cash flow was strong, up 10% year-on-year, reflecting a good trading performance and well-controlled inventory, which is benefiting from the investment in and deployment of forecasting and replenishment tools, particularly in stores.

As I explained in our interim presentation, CapEx of GBP 67 million is higher than we've seen recently, primarily driven by the acquisition of two freehold retail properties in attractive locations, which will connect us with more customers in areas where we're currently underrepresented. These opportunities are unpredictable, and we still expect most of our store openings to be leasehold. We remain a CapEx-light business, and we take significant amounts of investment through our P&L while still delivering that broadly stable margin.

We ended the period with a net debt position of GBP 102 million, which at 0.3x EBITDA, it is comfortably within our target range, and this was after the payment of GBP 159 million of dividends in the year. To give more color to our GBP 67 million of CapEx this year, more than half of it was driven by our decision to take advantage of four strategic opportunities. These were primarily the two freehold properties in the Southeast of the country that I've described, and we'll start work to convert these to Dunelm stores this year.

We also acquired a small business in Ireland with a portfolio of 13 stores. We're currently bringing new Dunelm product to our Irish customers and are refitting and rebranding the stores we have acquired as well as working on developing a full e-commerce offer for Ireland. Finally, we acquired the Designers Guild brand and design archive, which will give us an exciting opportunity over time to bring more beautiful fabric designs to our customers.

And then more usually, we also continue to invest in new stores and refits, spending GBP 22 million on opening 6 new superstores, including 1 relocation, our first store in inner London and an 8 major refits. We aim to continue this approach on stores and refits in FY '26 with a view to opening 5 to 10 new superstores, a second inner London store, and we have more than 10 refits planned. It's important to us that we invest in the business for growth and efficiency.

And we're also proud of our track record of strong shareholder returns in the form of a progressive ordinary dividend and further distributions from the surplus cash on the balance sheet. This year, the Board is declaring a final dividend of 28p per share, bringing the total dividend for the year to 44.5p per share, up 2.3% year-on-year. Ordinary dividend cover for the year was 1.73x, very slightly outside our target range of 1.75x to 2.25x, but comfortably covered by cash generation and a reflection of our confidence in the business. We also paid a special dividend of 35p per share in April, bringing the total distribution for the year to 79.5p.

I'll now give our guidance and outlook for FY '26 before handing back to Nick for his strategic update. In terms of financial guidance, we will continue to invest in the business for growth and efficiency, and we're guiding to CapEx of around GBP 50 million for 5 to 10 new superstores, at least 1 in the London store and a continued program of store refits. We expect working capital to be broadly neutral over the year, but we expect a timing benefit of around GBP 90 million at the end of H1, just as we saw in the first half of FY '25. And finally, we expect our effective tax rate once again to be 50 to 100 basis points above the U.K. rate of corporation tax.

Moving on to outlook. At this early stage of the year, we're pleased with trading so far and that despite some pretty warm weather, which has impacted store footfall, we're pleased that we've seen a positive response to our new autumn/winter ranges. Nevertheless, we're not yet seeing trends that would indicate a sustained consumer recovery. We will continue to progress our strategic initiatives.

We're excited about our future plans, which as well as more new stores and investment for growth and productivity include our app, which will be available for download -- for customers to download this autumn. We're well placed to deliver sustainable, profitable growth despite entering another year of challenging inflationary pressures. And we are confident of making further market share gains as we progress towards our 10% medium-term milestone.

And with that, thank you for your attention, and I'll now pass back to Nick for the last time.

Thanks, Karen. So onwards. As you know, our ambition is to build Dunelm into the most trusted and valued brand for customers in homewares and furniture. We want to be The Home of Homes and a 10% share of our addressable market is simply the next milestone on that journey. To achieve this, we have three broad focus areas which frame our priorities and our investments. And in summary, outlined on the right-hand side of this page, 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 drive efficiency and effectiveness.

These pillars are compounding, which necessitates a high degree of cross-team collaboration and of learning, something which our values and culture sets us up well to do. We're doing all of this in a period of lackluster consumer confidence, but we're happy to embrace the realities of how U.K. consumers are feeling right now. There's plenty of joy in our offer.

And in the current environment, we're getting on with helping our customers create the joy of truly feeling at home and raising the bar on the value that we offer at every price quality tier, remembering that our average item value is still only just over GBP 10. As we enter a new year, we're accelerating and evolving those parts of our plan, which play to our multichannel and multi-category strengths. I think the benefits of operating both physical and digital channels proficiently are now well understood. Almost 30% growth in our Click & Collect sales last year is an illustration of this.

At the same time, the benefits of being a multi-category specialist are also increasingly apparent. Coordinating our offer across categories allows our customers to better sell their homes, makes it more easy for them to shop with us and improves our marketing efficiency. Our current student campaign is a great example of this for some of our newest customers. So to bring our plans to life, I'll talk just briefly to a couple of examples in each of those three focus areas.

And we'll start with furniture. It's been a strong contributor to our growth for many years now. And you've heard me say regularly how we're building capabilities here in product design and in sourcing. There's no better example of this than in upholstered chairs and sofas. From an early success in a chair that some of you may remember called Ila, we have grown a well-curated range of strong sellers. Ila lives on in the LC chair shown here with new colorways and materials this year. Beatrice is another best seller, recently evolving into Beatrice II, you've got the picture.

Our supply chain is also getting more sophisticated. We deliver furniture through our own home delivery network to most of the U.K. and most of our range is available for quick delivery. If you order today, Tuesday, you'll have it before the weekend. Meanwhile, in our U.K. manufactured made-to-order collections, it's important not to overwhelm customers. That's why the 14,000 combinations we offer are presented as four simple steps. You choose the shape, the fabric, the padding and the feet of the sofa or chair you want us to make for you.

With our supply chain increasingly advanced, our focus is now on evolving the furniture shopping experience in our channels with changes to our store presentation being tested this year. I'll make all of this sound rather methodical, but the results are dramatic. In upholstered chairs and sofas, our market share has more than doubled in the last 5 years. But with only 2.2% of product category worth over GBP 3 billion, there is plenty of headroom for further growth.

Moving to our heritage textile categories where our market shares are higher, product development is still the starting point for raising the bar on our customer offer. I've listed three examples of this. Egyptian Cotton towels, we talked about in February, where we invested more quality in the yarn and manufacturing process and increased prices slightly while still being lower priced than comparable quality elsewhere. Results have been really good with growth in sales and gross margin. Hanging pack curtains is a current example.

And to explain very briefly, we offer many price/quality tiers of curtains from good to better to our best made-to-measure curtains. Our good tier curtains are folded and packaged on shelf. Our better curtains are heavier weighted. So rather than fold them in packets, we hang them on rails in store.

To this tier, we've now added more quality, weighted corners and deeper headings and a refreshed and updated color selection. The top image on the right-hand side is taken from our recent summer product event in Somerset House before we open the doors to press and influencers. As we double down on our product in these heartland categories, we are attracting customers who might otherwise go to nonspecialists.

So we are evolving, evolving our packaging to more clearly explained product features as well as price, easier navigation of the range in store and more personalized content to inspire in our digital channels. Our soon-to-air Home of Color autumn campaign presents our depth and breadth of product in simple terms, giving consumers confidence across our categories from curtains to upholster chairs and beyond.

On to our second focus area, connecting with more customers, and I'll start with online. Here, I've stepped right back to when we were in a phase that we called catch-up to show you in the graphic how enabled by improving data and tech capabilities, we've been constantly raising the bar on the digital customer experience that we are able to offer. With experimentation to improve customer experience, more choice, AI-driven search tools, more data to allow better personalization, we have excellent levers to carry on growing sustainably now and into the future.

The phase we're entering next will see us doing more scaling up. And with the imminent launch of our app, we're also referring to this phase as joining up. Launching an app at this stage when we have good product data and good digital capabilities, we see a twofold opportunity. Firstly, the app will offer us more capability for product inspiration. That's because, and I know many of you know this really well, the app won't have the high cost of generating website traffic, so it's possible for us to play further up the customer funnel, focusing on product stories and ideas that appeal to customers who are browsing rather than necessarily looking to buy immediately.

And because you're always signed into the app, we'll be able to show you better content that's more relevant to your preferences. That's exciting for us as a product specialist with many, many stories to tell. Secondly, the app will allow us to better develop our cross-channel experiences, easier to check availability in your preferred local store, more product information on the shelf, more personalized offers and in time, much more beyond. Good cross-channel shopping drives frequency and differentiation from single-channel players, which is why we love our stores.

And as you'd expect, we've been very busy here. And as Karen explained, we've invested slightly more than normal in our stores in the last 12 months. London is simply a segment of our addressable market that we underserve. 10 years ago, we were very much just arriving in Greater London, opening stores close to the North and South circular roads. And those stores have done very well for us, but there's a lot more to go for. As you know, we've recently opened our first store in London borough, connecting us to new customers, and it's going to be joined by another similar sized store in Q2.

And the two freehold developments we purchased last year will be large stores when they open just outside of London to the South. It's worth emphasizing that the different sizes of stores we operate are a function of site availability and catchment size. We favor large superstores, 20,000 square feet with a mezzanine to trade 30,000 square foot in total wherever practical, such as recently opened in our latest store in Manchester.

But in Trowbridge, which is a smaller infill catchment in an area with longer drive times, we'll happily open a smaller superstore. Both sizes generate good paybacks and sustainable growth, giving us more optionality in a tight property market. This year, we expect to open 5 to 10 superstores and for the majority to be larger ones. We're also busy with store refits. These are ongoing programs of work to ensure our estate is upgraded on a regular basis. Refits allow us to introduce new ideas.

And as I mentioned earlier, when I talked about product innovation, we're improving our store presentations and densities in furniture as a current focus. The best ideas we then roll out through the refits we do each year, such as our new cafe format or more quickly to many stores, such as the new self-checkout that we will roll out to all stores by the end of the year after this.

And on to our third focus area, harnessing our operational capabilities, to drive efficiency and effectiveness. This one is not just about cost, it's also about growth. Karen has given you more on costs. So just one slide here of examples. Continuous improvement first. And I'd call out our performance marketing efficiencies as a good example of a small team doing smart things with data and experimentation to drive customer level transaction profitability.

In our big labor areas, I'll highlight store operations as a good example of a large team doing smart things and managing a lot of change. In the last 6 weeks, we've introduced new store leadership structures, new delivery schedules and new Click & Collect processes. Self-checkouts are taking 70% of total transactions where we rolled them out. Tech and data-enabled changes like self-checkout and the new forecasting replenishment system we've successfully implemented are examples of moderate-sized programs that have grown our skills and confidence in good product discovery, tech delivery and business change. We've got many new initiatives that we're exploring, as you would expect.

And 3 examples to share with you here. We like the benefits we've seen from the initial testing of RFID tagging in textiles to improve stock accuracy and store processes. We're developing with our committed suppliers and partners the optimum approach to adding more mechanization into our logistics operations. And we're excited by what we've already done with AI, site search, for example, and with some proofs of concept, we're currently running in new areas, the optimization of ultra-high-quality content images at scale as an example of this.

I'm as excited as I am for the opportunities we have on grip as I am for growth for profitability and efficiency as well as for sales. So to sum up, it's fair to say that my ambition for the business is no less now than it was when I was preparing for my interview in 2017. With amazing colleagues, we've built and achieved a lot since then, but there is still so much more to do. A feature of my tenure has been the fast-changing macro environment. In sometimes stormy seas, my team and I have benefited greatly from inheriting a very strong business model.

In turn, that's allowed us to continue investing, ensure we make our model even stronger, always adding quality as well as quantity. We now have a thriving digital business alongside our stores and scaling up digitally has been in lockstep with elevating our product offer, the two have fueled each other. And this combination, multi-channel and multi-category positions us strongly for the future. Analysts often ask me who our biggest competitors are. And when your share is only 8% and you face different players in different categories, the answer is really fragmented.

We are surrounded, which we love. We respectfully compete against some of the best businesses in the world, but we feel strong for being multi-channel, and we feel strong for being multi-category. In shopping for their homes, U.K. consumers are multi-channel and they are multi-category. We also like to be different in our relationships. We want our customers to be themselves, not our image of what they should be, never judged in terms of budget or style.

We do extraordinary things in our local communities and our committed suppliers are as much part of our business as our own teams of buyers and designers. All the team at Dunelm are ambitious and restless. They're looking forward to the arrival of Clodagh Moriarty, and I'm profoundly grateful to them for all they have taught me and how much they have grown over the years. On the right-hand side of this page, probably my favorite graph, showing our market share growth by category.

This is the data up until calendar year 2024. But with only 8% of the market, the picture is of headroom, not of achievement. I know that all my Dunelm colleagues look at that graph and see what can be done and the opportunity to sell more. From furniture to hard goods like lighting to textiles we've been selling for over 40 years, we are, in many ways, still only just getting started. Just getting started is not the typical last line of a departing CEO, but it's my last lines and why I'm delighted to carry on as a long-term shareholder in this business.

So on that note, we're going to go to Q&A, but I think Alison is going to say a few words before that. So [indiscernible]...

Good morning, everybody. For those of you who don't know me, I'm hoping not very many, I'm Alison Brittain, I'm Dunelm's Chair. As many of you know, I don't normally speak at these results presentations, and I am promising you now that I will not make a habit of it. However, we are approaching a pivotal moment, a transition in leadership for our company. And so I thought it was worth me saying a few words about that.

So I'd like to start by recognizing Nick for his enormous contribution and all that he's done for Dunelm in his 7.5-year tenure as CEO. As he himself said in his presentation, Dunelm's inherent strengths have been a constant throughout this time. However, he has undoubtedly used his own special blend of skills, experience and leadership to harness those strengths and to move the business forward.

Beyond Dunelm's strong financial performance, Nick has overseen a significant transformation, building Dunelm's strengths and developing the business as a truly multichannel retailer. He's preserved the very best of the company's values whilst modernizing and developing its capabilities in what have often been extremely challenging external circumstances. So on behalf of the Board, I'd like to extend a huge thank you to Nick and to wish him every success for the future.

As you've seen this morning, Nick's leaving the business in fantastic shape. And testament to this was the very high quality of candidates who wanted to succeed in. And of those, the outstanding candidates through the process was Clodagh Moriarty, who's known as Clo. I'm delighted that Clo will be joining us as our new CEO in just a few weeks' time. She brings extensive experience across a range of leadership positions, combining successful roles in retail, strategy, digital, technology and transformation. I have no doubt that her passion and energy alongside her expertise will be invaluable to Dunelm as we move forward.

And Clo is joining the business at a great time. There's lots of opportunity in the business. She's joining a very strong, well-established executive team, and she has a supportive and experienced Board behind her. So I'm really excited to be working with her, and I know that she is equally excited to be getting started.

So I hope that many of you with us today will get the chance to meet her in person over the coming months and before, of course, hearing from her properly at the interim results presentation in February.