Debenhams drops dividend

As expected, trading for the year to 1 September was not encouraging. The group reported its biggest ever net loss and experienced a 65 per cent decline in underlying pre-tax profits. Management has also opted not to pay a final dividend, although one might venture that this was a wise decision, given the need to cut costs and preserve capital. Meanwhile, considerable statutory pre-tax losses stemmed partly from a £512m non-cash exceptional write-down in the value of group assets, as a consequence of goodwill and store impairment, lease provisions and systems write-offs.

So what drove the shares’ strong uptick on results day? It seems likely that this was triggered by the restructuring update. Indeed, the group confirmed that it had seen the “first positive signs of results” in its ‘Debenhams Redesigned’ strategy and announced further activities that will attempt to address the structural obstacles it faces as a high-street retailer. 

This includes further cost savings of at least £30m, annualising to around £50m by the 2020 financial year; a reduction in capital expenditure to approximately £70m, around half that seen in FY2018; and closing up to 50 stores over three to five years. This marks a significant increase on the 10 stores originally cited. These savings, alongside others, are expected to release around £350m in cash flow by FY2020 – before any asset disposals.

Broker Stifel forecasts adjusted pre-tax losses of £0.3m for the year to August 2019, with adjusted losses per share of 0.02p (FY2018: profits of £33.2m and EPS of 2.26p).