UPDATE 1-Homeware retailer Dunelm full-year profit seen rising 7 pct

Tue Jul 8, 2014 3:36am EDT

(Adds details, analyst comment, share movement)

July 8 (Reuters) - British homeware retailer Dunelm Group forecast a full-year pretax profit growth of over 7 percent, helped by aggressive store expansion and an ongoing direct sourcing programme.

The company, which has 136 stores across the UK selling items such as bedding, curtains and kitchenware, said that it expected pretax profit for the year to June 28 to be about 116 million pounds ($197.4 million). The company reported a pretax profit of 108.1 million pounds in the previous year.

Dunelm has benefited from its rapid store expansion amid signs of improvement in the UK economy. The company has a medium-term target of 200 superstores across the UK.

Britain's economy grew by 1.0 percent in the three months to April, its fastest pace since June 2010, the National Institute of Economic and Social Research estimated in May.

The company said like-for-like sales rose 5.5 percent in the fourth quarter. Total sales grew 7.8 percent to 730.2 million pounds for the full year.

Gross margins improved by about 80 basis points for the year, with 50 basis points from the final quarter alone.

"The gradual move towards direct sourcing should provide 20-30 basis points of incremental gross-margin gains each year for the foreseeable future," Oriel Securities said in a note.

The brokerage has an "add" rating on the stock with a target price of 950 pence.

Shares in the company rose as much as 1.6 percent to 836 pence in early trading on the London Stock Exchange. ($1 = 0.5877 British Pounds) (Reporting by Aastha Agnihotri in Bangalore; Editing by Gopakumar Warrier)