Price focus helps UK retailer Dunelm top profit forecast

(Reuters) -British homewares retailer Dunelm Group beat annual profit forecasts on Wednesday, helped by a drive to keep prices down, and forecast another increase in earnings this financial year despite an uncertain economic backdrop.

The company said it saw strong demand during the winter for electric blankets, candles and energy-efficient slow cookers, while customers spruced up their backyards with new garden furniture and decorations during the unusually hot May and June.

It cut prices on around 1,000 products during the spring as shoppers struggled with surging bills, knocking its profit margins but boosting sales.

"Many companies are growing earnings simply by jacking prices up, but that is a risky strategy as customers will get to a certain price point before looking elsewhere for a cheaper option," AJ Bell analyst Russ Mould said in a note.

Bell added that if Dunelm could attract customers of failed homewares retailer Wilko into its stores the company had an opportunity to further expand its market share in home decor.

Dunelm currently has roughly a 7% share of Britain's homewares and furniture market, which is worth a total of about 24 billion pounds ($30 billion).

Shares in the company rose as much as 4.5% to 1,1132 pence in morning trade.

Dunelm said it made a pretax profit of 192.7 million pounds in the year ended July 1, beating analysts' average forecast of about 188 million pounds, according to a company poll.

Sales climbed 5.5% to a record 1.64 billion pounds.

The company said the new financial year had started well.

($1 = 0.8086 pounds)

(Reporting by Radhika Anilkumar in Bengaluru; Editing by Subhranshu Sahu and Mark Potter)