Shares rose as much as 6.5% in early trade.
Chief Executive Officer Nick Wilkinson said the operating environment was extremely challenging and the group was putting a tight lid on costs.
The British homeware retailer saw a 32% rise in profit before tax for the year ended July 2 to 209 million pounds ($240.12 million).
"We note that our latest homewares pricing survey indicates Dunelm has improved its price competitiveness through the introduction of more entry-price ranges, which we think should help to support topline," said an analyst at RBC Capital Markets.
The company has been building its inventories to combat industry-wide supply chain disruptions, with stock holding 29% higher than last year.
However, Dunelm expects stock holding to reduce in 2023.
Dunelm, which sells furnishings ranging from cushions and bedding to kitchen equipment, expects to deliver about 50% gross margin in 2023, slightly lower than the 51.2% it saw in 2022.
($1 = 0.8704 pounds)
(Reporting by Radhika Anilkumar in Bengaluru; Editing by Krishna Chandra Eluri)