It seems strange to be blaming snow during a heatwave, but that’s exactly what department store chain Debenhams (DEB) did to explain away a 52 per cent crash in underlying half-year pre-tax profits. The group hasn’t failed to point out that the retail market is “volatile”, but it says heavy snow in March forced the temporary closure of 100 stores, which had a negative 1 per cent impact on like-for-like sales (which fell 2.2 per cent overall). A disappointing Christmas had prompted widespread and prolonged discounting, which widened the gross margin decline to 160 basis points. This dragged cash profits down by 39 per cent, while pre-tax profits took a battering from exceptional charges related to chief executive Sergio Bucher’s ‘Debenhams Redesigned’ recovery plan. The dividend also halved to 0.5p, with the implication being that free cash can be put toward future investments.
A profit warning in January meant we didn’t expect much from this announcement. But pre-tax profits of £42.2m still fell short of broker Peel Hunt’s revised £44.7m forecast. It's perhaps no surprise, then, that the share price took a further tumble on results day, taking the stock down by nearly two-thirds over the last 12 months. But Mr Bucher is confident his recovery strategy will work, especially when it comes to improving product lines and customer service.
True, Debenhams hasn’t been immune to the slew of challenges facing all retailers – the introduction of the national living wage, exchange rates and price inflation to name a few – but some analysts believe it’s still the products and store environment which are the main reasons why Debenhams continues to lose customers. Peel Hunt concludes that both “have become tired”, and that a recovery at the chain is “far from certain”. To that end, it still expects pre-tax profits to fall to £55.4m for the year ending August 2018, giving EPS of 3.7p, compared to £95.2m and 6.3p in FY2017.
| DEBENHAMS (DEB) | ||||
| ORD PRICE: | 21.3p | MARKET VALUE: | £ 262m | |
| TOUCH: | 21.3-21.4p | 12-MONTH HIGH: | 56p | LOW: 20p |
| DIVIDEND YIELD: | 13.6% | PE RATIO: | NA | |
| NET ASSET VALUE: | 73p* | NET DEBT: | 28% | |
| Half-year to 3 Mar | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 | 1.35 | 87.8 | 5.8 | 1.03 |
| 2018 | 1.32 | 13.5 | 0.9 | 0.50 |
| % change | -2 | -85 | -84 | -51 |
| Ex-div: | 07 Jun | |||
| Payment: | 06 Jul | |||
| *Includes intangible assets of £995m or 81p a share | ||||
