The homewares and home improvement market got a qualified vote of confidence as value homewares group Dunelm posted strong Christmas trading and flooring specialist Topps Tiles reported that its financial year had started well.

But both retailers warned of a challenging year ahead and remained cautious about consumer sentiment in 2010.

Dunelm posted 15.4% like-for-like growth in the 26 weeks to January 2, when total sales rose 26% to £254.2m and gross margins improved 200-basis points.

Topps Tiles’ like-for-like sales in the UK were up 5.5% in the 14 weeks to January 3 and total sales were ahead 3.9%.

Dunelm chief executive Will Adderley said he was delighted with the performance but cautioned: “It will be much more difficult to sustain like-for-like growth over the next six to 12 months.”

The calendar effect of the Sale timing - which boosted Dunelm’s Christmas figures - is expected to bring like-for-like growth in the second half down by about 2 percentage points. The passing of year-on-year benefits of competitor collapse and withdrawal and more demanding comparatives are also among factors prompting caution.

Topps Tiles was pleased with its performance, which it believes showed consumer confidence is returning, and said that it would aim to add to its 308-store portfolio.

However, Topps Tiles warned that 2010 will present a challenging economic environment for customers.

Topps Tiles has withdrawn support and funding from its loss-making Dutch business, which has now been placed into administration and the stores have stopped trading.

In November Topps completed a £15.4m fundraising, which it said would help support its growth strategy and give it financial flexibility.

The updates were well received by analysts. UBS analyst Isabel Green said Dunelm’s figures were “slightly ahead of our forecasts”, while Investec analyst Katharine Wynne cited Dunelm as a “business we believe has the scope to double in size over the next three to five years”.

Ambrian analyst Philip Dorgan said Topps Tiles’ figures showed the retailer “is getting there” and provided “further evidence that the UK consumer is beginning to feel better”.

However, Shore Capital analyst Kate Calvert cautioned that she expects the all-important UK housing market to remain subdued.

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