Cautious Debenhams happier with H2 improvement after difficult H1

There were no surprises from Debenhams Thursday morning as the UK-based department store group posted an expected dip in annual profits mainly reflecting a difficult H1 when warm autumn/winter weather hurt sales in the run-up to last Christmas. The retailer reported underlying pre-tax profit fell 20.6% to £110.3m in the 12 months ended August 30, in line with analysts’ forecast, as lower operating profit and higher costs dented its performance.

Reported pre-tax profit, after the impact of the non-recurring costs, fell 23.9% to £105.8m.

Group same-store sales for the year were up a modest 1%. Online sales, however, increased 17.6% to £430.7m, accounting for 15.3% of total sales in 2014, up from 13.2% in the previous year.

International sales increased 5.1% to £548.6m with ebitda up 9.5% to £42.5m. The international store count a year-end included 68 franchise stores in 25 countries, six Magasin du Nord stores in Denmark and 11 Debenhams stores in the Republic of Ireland.

Group gross margin fell 60bps: down 100bps in H1, but up 10bps in H2.

On the upside the group, which operates 240 stores in 28 countries, said its H2 performance had improved and it was making progress with its turnaround plan. A refocusing of its promotional strategy resulted in 10.6% increase in own brand full price sell-through in H2, it noted.

It also noted there were “encouraging early signs” from UK space trials including retailers Sports Direct, Monsoon and Mothercare. There were also strong debut seasons for Patrick Grant, Stephen Jones and Todd Lynn within its Designers at Debenhams collections.

But Debenhams also said it remains cautious about the outlook as consumers were still not seeing a rise in their disposable incomes.

“While this has been a challenging year for Debenhams, the brand is strong and our improved second half performance gives us confidence that we are ready for the key Christmas period and can deliver sustainable growth over the longer term,” said chief executive Michael Sharp.

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