Debenhams shakes off debt hangover

It is unsurprising, then, that the focus of 2009 has been reducing that debt burden. And after slashing dividends, cutting back on capital expenditure and raising over £300m through a placing and open offer, the company has been fairly successful in restoring some stability to its balance sheet. It managed to cut debt by over £400m by the year end, to just over £590m, and has made a further £100m payment since.

And, inspite of the focus on debt reduction, Debenham's didn't take its eye off the ball when it came to running its day-to-day business, either. Like-for-like sales may have fallen 3.6 per cent, but that was a creditable performance in a challenging retail market, and was partly caused by the disruption of transitioning 530,000 square feet of space from concessions to its own-bought ranges - the largest space move in its history.

Although the move was only completed after the year-end, the higher proportion of own-bought ranges in the sales mix is already demonstrated in improving profitability. Gross margins rose 70 basis points, thanks to a 3.4 per cent increase in own-bought products sales, which now account for 76 per of the total, versus 71.8 per cent a year ago. The retailer's Designers at Debenhams ranges proved particularly popular - sales here rose 11.4 per cent over the year, to £432m, and new brand launches within the initiative should leverage the additional space to good effect next year.

Of course, Debenhams is still up against an uncertain retail environment. The latest figures from the Office of National Statistics show that September retail sales were unmoved from August, with seasonally adjusted sales of non-food items 1.6 per cent lower than in 2008.

KBC Peel Hunt forecasts underlying pre-tax profits of £140.8m and EPS of 7.8p for the 12 months to end-August 2010, subject to review following the results.

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