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Homewares chain Dunelm has revealed falling profits after seeing sales growth slow sharply over its Christmas quarter as it struggled amid a subdued market and stock availability issues.

The retailer said pre-tax profits fell 7.5% to £114 million in the six months to December 27, with sales growth pulling back to a worse-than-expected 1.6% in the second quarter from 6.2% in the first three months.

It flagged a tough market for homewares over Christmas and an “extremely competitive” Black Friday, with demand for furniture particularly impacted.

The group added it had seen stock shortfalls on key furniture lines after “the forecasting and ordering of a small number of key product lines did not match up to customer demand”, which it is now taking action to address.

But it said trading had begun to recover in its third quarter so far, helped by its winter promotional sale, with overall growth “more in line” with the 3.6% revenues rise reported for the first half as a whole.

Dunelm said: “We remain confident in our plans for the second half, with the full launch of our app planned for spring and furniture availability recovery plans in place.”

However, it struck a cautious tone, saying the “consumer environment remains challenging, with variable trading patterns”.

The group saw shares hit hard in January after it warned full-year profits would come in at the lower end of forecasts at between£214 million and £227 million after disappointing festive sales .

Recently appointed chief executive Clo Moriarty said: “We delivered a solid first-half performance despite a softer second quarter, and we are seeing stronger sales growth in early third quarter following a good winter sale and an encouraging response to our new spring ranges.”

Ms Moriarty added there was “significant headroom for growth” to boost its share of the market.

“There is much more in the tank, and I’m excited for what lies ahead,” she said.

Ms Moriarty, previously chief retail and technology officer at Sainsbury’s, took up the role of chief executive at the furniture store in October.