Does Dusk Group (ASX:DSK) smell undervalued? There’d be potential if its customers weren’t so careful with money

Dusk Group (ASX:DSK) purports to be Australia’s favourite home fragrance seller. But investors have not been sharing the love for it for much of its listed life (at least since interest rates have been rising), as has been the case with many retail stocks. As consumers have cut back their spending, there have been perceptions that companies are being hit, and while this has not always been true, it has been the case with Dusk.

The company’s shares made some recovery in early 2025, only for that ground to be lost when Trump imposed his tariffs on the world. Now, they have not had any direct impact. But you know what else has not had a direct impact? Rate cuts and the Stage 3 tax cuts.

Nonetheless, the company claims things are turning around and the results will be seen soon.

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Who is Dusk Group?

Dusk sells home fragrance products such as candles, diffusers, air purifiers and essential oils. It traces its origins back to 2000 when Perth businessman David Stratton opened the first store. It was acquired by retail conglomerate Brazin in 2004 for just $24m and was sold in 2010 to Catalyst Investment Management and Brett Blundy’s BB Retail Capital.

Dusk Group listed in 2020 at $2 per share, a deal that gave the company a $124.5m market capitalisation (10x P/E). By that time, it had 115 stores across the country. After a nuanced debut, shares rose as high as $4 in mid-2021, but it was been all downhill until mid-2024 when shares bottomed out at $0.60 per share. Shares recovered to $1.20 over the next few months, only to retreat once more. Now it is $0.70 per share and capped at under $50m.

Why did Dusk Group rise and fall?

Dusk Group’s share price rose because their sales did substantially during the pandemic. People stuck at home opted to spend their money on homewares. The company’s sales in FY21 increased by over 47% and it more than doubled its post-tax profit from $9.5m to $21.9m. Also helping the company was Wilson Asset Management accumulating a substantial position in the company.

But as the economy returned to normal, so did this company’s sales. Adding insult to injury, marketing and freight costs all added up as inflation spiked to 4-decade highs. In FY22, its sales declined by 7% to $138.4m, even though this was 37% higher than FY20. Like-for-like sales declined 10.5% and Dusk’s NPAT declined by 31% to $18.5m.

FY23 continued the decline in sales (especially online sales) and margins. Dusk’s revenue was only slightly down, at $137.6m, but its profit was $11.6m. Even though FY24 sales were a further 8% down, at $126.7m, sales improved in the back half of the year. Its gross profit margin was up 0.2 percentage points and it paid a dividend of 6.5c per share.

In FY25, it delivered $137.8m sales (up 9%) with like for like sales rising 7%. It made a gross profit of $87.7m, up 7.5% and representing a 63.7% margin. Its underlying EBIT was up 23% to $7.7m and its profit was $4.4m. It had 150 net stores and $17.3m inventory.

Dusk’s customer are…careful with money

It has over 674,000 reward members – we’re not talking just those who signed up to receive marketing emails, we’re talking people who paid just to be members. They have historically accounted for more than half of total sales.

Now, the company made a decision to increase the sign-on free from $10 to $15 in mid-2023 and this saw some drop-off. Dusk saw it had made a mistake, reverted it and saw many come back in the first few weeks of FY25 – but not enough for numbers to be 21,000 lower than 12 months ago and the ATV for members being slightly lower (albeit by $1). But their return demonstrates just as much as their exit that their customer base is by and large…careful with money.

What does the longer-term future hold?

Dusk claimed that FY25 was a year of transition and FY26 had begun well. It was relaunching its core products, ran one-off collaborations (such as the Willy Wonka product collaboration) launching a new store format (Afterglow) that delivered higher sales.

Specifically, a typical store would deliver 25% higher sales, 32% higher member sales, 22% higher Average Transaction Value and 15% New Customer Growth. This is based off the 2 new stores in this format (West Lakes in SA and Macarthur Squares and for 15 weeks and 5 weeks respectively).

Turning to consensus estimates, they agree with the sentiment that there’ll be top line growth with $144m in revenue called for in FY26, then $151.8m in FY27 and $159.7m in FY28. The bottom line is expected to be flat in FY26 then grow by 30% in FY27 to $8.1m. Its multiples are just 5.6x EV/EBITDA and 8.1x P/E.

If DSK was worth 10x P/E at its IPO and deserved to be now, it should be trading at $1.30 per share for FY27. And this is the mean target price amongst analysts.

If only it had customers less careful with their money

A key challenge for the company will be that there’ll be no Stage 3 tax cuts during FY26 and just $5 a week cuts in the next 2 years. And the prospect of interest rates rising in 2026 could represent a new difficulty.

But this is a company undergoing an evolution from what it was a few years ago, growing its year-round revenues and reaching out to new target consumers. This is one to watch for the future, but not necessarily one to jump right into right now. We’d prefer to wait until its 1H26 results in February when we may have more details on the company’s future plans, as well as how the current financial year has begun.