Debenhams delivers tough trading update

We all know how tough it is for UK department stores at the moment and Debenhams is one of those that seems to be suffering the most, which makes its trading update on Tuesday one of the most watched announcements of the season.


Debenhams


The company said that for the 15 weeks (and 41 weeks) to June 16, its performance doesn't seem to be improving much. In the 41 weeks its group gross transaction value fell 1.6%, but in the shorter, more recent period it fell an almost-as-bad 1.5%.

And on the like-for-like sales front, the story wasn't any better. The 41 weeks saw comp sales down 2.1% (or 2.6% in constant currencies) but in the 15 weeks they fell 'only' 1.7% (or 2.2% in constant currencies).

There was better news on digital as the longer period saw growth of 11.5% but sales were up 16% in more recent months.

But that was where the good news stopped and the company revised down its margin guidance, as well as its profit expectations. It has “reassessed” its expectations for the balance of the year and it now expects pre-tax profit for FY2018 to be in the range of £35m-£40m, with EBITDA in the range £160-£165m. This compares with current market pre-tax profit consensus of £50.3m.

The company is working to make sure it makes as much money a possible and said it’s “driving out further cost opportunities beyond those already announced, focusing on self-help and prioritising cash generation.”

But what has happened to Debenhams’ much-talked-about recovery plan? Well, it’s still happening but not much seems to be working yet. Its cost saving targets are on track, at least, but the company said that it faces “a background of increased competitor discounting and weakness in key markets [with] trading in May and early June below plan, despite weak comparatives.”

Which is all very well, but it can't go on cutting costs for ever without significant sales improvements finally kicking in and helping it to get back into growth mode.

Debenhams says it remains committed to its five priority actions to drive progress in the current financial year: a digital focus, continuing to boost growth category beauty, reinventing Designers@Debenhams, boosting the in-store experience and, of course, that cost-reduction focus.

CEO Sergio Bucher was blunt in his assessment of the situation: “It is well-documented that these are exceptionally difficult times in UK retail, and our trading performance in this quarter reflects that. We don't see these conditions changing in the near future and, because it is our priority to maintain a robust balance sheet, we are making very careful choices about how we deploy capital. 

“We see clear evidence of progress as our digital growth outperforms the market and customers respond positively to our product improvements and format trials. We have also put in place a leaner operational structure and made a number of important hires so that we are well-equipped to navigate the market turbulence.”

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