Debenhams trading update comes with profit warning, digital growth slows
today Mar 5, 2019
At a time when retail sales have been generally weak, comparisons with year-ago figures tend to get easier so there’s always the chance that a retailer that’s been struggling for a while could turn in better figures at some point. Was that the case with Debenhams on Tuesday?
Uh-uh. The department store giant continues to decline and its figures for the 26 weeks to March 2 didn’t exactly look encouraging on Tuesday morning, even though the drop has “moderated”.
But news that an earlier statement that it’s “on track to deliver current year profits in line with market expectations is no longer valid,” really summed up how hard the environment is for the business at the moment.
First, the numbers. Group gross transaction value (GTV) had already been flagged up as weak in the first 18 weeks of the period with a 5.6% drop in total and a 5.7% fall on a like-for-like basis. The UK fell 6.2% with international dropping 3.5%, but digital rose 4.6% in the 18 weeks.
The eight weeks since then give Debenhams a better view of its complete first half, and eight-week group GTV has fallen ‘only’ 5%, with like-for-likes down 4.7%. That’s not exactly encouraging and with the combined figures meaning that the first half overall saw GTV down 5.4% and a like-for-like drop of 5.3%, there’s clearly lots of work to do.
And most of that work needs to happen in the core UK market where 26-week GTV declined by 6% with international down a less bad 2.3%. Digital was the only bright spot but while the company has reported digital sales up 4.6% in the first 18 weeks, it gave no figure for the eight weeks and said that for the 26 weeks they rose only 2%. Is this crucial area slowing down? It looks like it. Digital growth in the previous year's second half had been 16% and many rivals are still turning in healthy rises, even as comparisons get harder and their physical store ops prove weak.
Of course, Debenhams does have some good things to look forward to with its annualised £80 million cost saving programme being “on track” and the first ranges resulting from its crucial sourcing partnership with Li & Fung set to be in stores in the current season.
And it added that further to its announcement of last month regarding an additional £40 million bridge finance facility, “discussions with stakeholders have now progressed to include options to restructure our balance sheet in order to address our future funding requirements, and are continuing constructively.”
However, times are still clearly tough… very tough. “While trading headwinds have moderated in recent weeks, this process is likely to be disruptive to our business in the coming months,” it said on Tuesday morning. And as mentioned at the top of this page, there’s that profit warning. “Taken together with macroeconomic uncertainties and increased financing costs as a result of additional working capital needs, this means that the group's statement made on 10 January that we were ‘on track to deliver current year profits in line with market expectations’ is no longer valid,” it said. “We will provide a further update with our interim results announcement.”
What did under-pressure CEO Sergio Bucher have to say? He was cautious but maintained his view that things will work out in the end. “We are making good progress with our stakeholder discussions to put the business on a firm footing for the future,” he said.
“We still expect that this process will lead to around 50 stores closing in the medium term. Our priority is to secure the best outcome for the business and all our stakeholders, whilst minimising the number of store closures and job losses. To do this, as we have said before, we will need the support of both landlords and local authorities to address our rents, rates and lease commitments.”
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