• Debenhams said profit before tax tumbled 84.6% to GBP13.5m (US$19.2m) in the first half. 
  • Group sales slipped 2.4% to GBP1.3bn.
  • CFO Matt Smith is to leave the business to take up the position of finance director at upscale department store Selfridges.
CFO Matt Smith is to leave Debenhams to take up the position of finance director at upscale department store Selfridges

CFO Matt Smith is to leave Debenhams to take up the position of finance director at upscale department store Selfridges

Shares in Debenhams tumbled by more than 6% this morning (19 April) as the British department store group revealed an 84.6% drop in profit for the first half of the financial year and announced the departure of its chief financial officer.

For the 26 weeks to 3 March, the retailer reported profit before tax of GBP13.5m (US$19.2m), compared to GBP87.8m last year. Underlying profit before tax before exceptional items decreased by 51.9% to GBP42.2m, as Debenhams was hit by a GBP28.7m charge in relation to its Redesigned turnaround strategy.

Group sales, meanwhile, slipped 2.4% to GBP1.3bn, while group gross transaction value decreased by 1.6% to GBP1.7bn. Like-for-like sales were down 2.2% on a reported basis and decreased 2.8% on a constant currency basis.

In Debenhams' domestic market, sales were down 3.7% to GBP1.07bn, while international sales grew 3.5% to GBP253.3m. The retailer's sales its largest international business - Magasin du Nord in Denmark – built on its consistent track record of good sales and profit improvement in the period.

Meanwhile, digital sales were up 9.7%, with mobile demand continuing to drive performance, with orders via smartphones growing 35% in the first half, and now accounting for 33% of digital sales. The retailer added it held share in a "weak" clothing market during the period.

Group gross margin rate declined 160 basis points, compared to Debenhams' expectations of a 150 basis point decline forecast in January. The retailer said the decrease reflected clearance of gift ranges and management of seasonal stocks in reaction to a disappointing Christmas season which saw an increase in competitor discounting.

"We expect no help from the external environment, so we are focused on delivering our 'Debenhams Redesigned' strategy."

"The UK retail environment is undergoing profound change, and with the help of some important new senior hires, we are moving faster and working harder than ever to ensure Debenhams is well-placed to outperform in this new retail world. We expect no help from the external environment, so we are focused on delivering our Debenhams Redesigned strategy, aiming to mitigate difficult trading conditions through self-help initiatives," said CEO Sergio Bucher.

The retailer unveiled its 'Debenhams Redesigned' strategy last year in a bid to drive growth but to also find efficiencies through simplifying and focusing the business.

Revealed in April, the plan is aimed at making Debenhams more digitally-driven and more of a "destination" shop. It will work alongside Debenham's 'Fix the Basics' plan, which is already underway to switch around 2,000 staff to customer-facing roles, replenish stock faster, and de-clutter the store environment, amongst other things.

It also includes plans to review the closure of up to ten UK stores and exit some non-core international markets over the next five years.

Debenhams considers store closures under turnaround strategy

"It has not been an easy first half and the extreme weather in the final week of the half had a material impact on our results," Bucher adds. "But I am hugely encouraged by the progress we are making to transform Debenhams for our customers.

"We approach the remainder of the year mindful of the very challenging market conditions, but with confidence that we have a strong team and the right plan to navigate them and return Debenhams to profitable growth."

Looking ahead, Debenhams said that based on its current view of the second half of the financial year, full-year profit before tax is expected to be at the lower end of current broker forecasts, at between GBP50m and GBP61m.

The retailer also announced the departure of its chief financial officer, Matt Smith, who is to leave the business in order to take up the position of finance director at upscale department store Selfridges.

In a separate announcement, Debenhams said it has begun the search for a successor and that Smith will remain in the role "in the meantime" to ensure an orderly handover.

Sofie Willmott, senior retail analyst at GlobalData, notes although Debenhams' turnaround strategy is well-targeted to address many of its longstanding issues, there is little evidence that it has impacted results so far.

"A big part of Debenhams' strategy is to improve its product range which is vital to attract shoppers who have become disillusioned with its dull offer, with well-known brands Jeff Banks and John Rocha being phased out and replaced by more modern designers like Richard Quinn," she explains.

"Despite all the other operational advances Debenhams is making, product should be its number one priority."

"Despite all the other operational advances Debenhams is making, product should be its number one priority as investment will improve overall shopper perception and support growth across other focus areas such as digital channels."

And while it has a large store portfolio in comparison to its department store competitors including John Lewis and House of Fraser, Debenhams has identified just ten stores to close, two of which were shuttered in January 2018.

"Rather than slashing store numbers, Debenhams is focusing on adjusting stores to the ideal size, filling under-used space with revenue generators like food service options and gyms," says Willmott. "Given restricted consumer budgets and the increased proportion of spend going on leisure activities along with rising store operating costs, Debenhams will go some way to future-proof stores by driving revenue through areas other than retail products."