Shares rose as much as 6.5% in early trading.
Chief Executive Nick Wilkinson said the operating environment was extremely difficult and the group was tightly controlling costs.
The British home goods retailer saw its pre-tax profit rise 32% for the year ended July 2, to 209 million pounds ($240.12 million).
“We are bound to note that our latest household goods price survey indicates that Dunelm has improved its price competitiveness through the introduction of more entry-level ranges, which we believe should help support the top line,” said an RBC Capital Markets analyst.
The company has been building up inventory to combat industry-wide supply chain disruptions, with inventory 29% higher than last year.
However, Dunelm expects inventory holdings to decrease in 2023.
Dunelm, which sells home furnishings ranging from cushions and bedding to kitchen equipment, forecasts a gross margin of around 50% in 2023, slightly lower than the 51.2% recorded in 2022.
($1 = 0.8704 pounds)