A “swift but thoughtful appointment” of a fashion division head is much needed at Debenhams to ensure clothing and footwear is on point and to prevent losing customers to rivals Next and M&S, according to one analyst, as the British department store group’s ongoing turnaround strategy takes its toll on full-year earnings.
In a preliminary announcement last week, the retailer said for the 52 weeks to 3 September, reported profit before tax fell 44.2% to GBP59m (US$77.86m), compared to GBP105.8m last year. Underlying profit before tax before exceptional items decreased by 16.6% to GBP95.2m, as Debenhams was hit by a GBP36.2m charge in relation to its Redesigned turnaround strategy.
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Group sales edged up 1.1% to GBP2.34bn, while group gross transaction value increased by 2% to GBP2.95bn. Like-for-like sales increased by 2.1% on a reported basis and decreased 0.2% on a constant currency basis.
In Debenhams’ domestic market, sales were down 0.7% to GBP1.89bn, while international sales grew 9.5% to GBP442.1m. The retailer sales its largest international business – Magasin du Nord in Denmark – enjoyed a “solid” year in a tougher trading environment, while its Irish business benefited from restructuring under examinership.
Meanwhile, digital sales were up 12.7%, driven by mobile orders up 57% in the UK, while clothing sales declined by 0.5%, broadly in line with the UK market.
Group gross margin rate declined 30 basis points, in line with guidance.
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By GlobalData“We are making good progress with implementing our new strategy, Debenhams Redesigned, and are encouraged by the results from our initial trials, as well as the number of exciting new partners who want to work with us,” said CEO Sergio Bucher. “There is a lot to do but I am delighted with the enthusiasm and flair shown by my colleagues as we embark on this journey. I’d like to thank the whole team for delivering these results against a background of rapid change in the business.
The retailer unveiled its ‘Debenhams Redesigned’ strategy earlier this year in a bid to drive growth but 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.
Debenhams considers store closures under turnaround strategy
As well as testing and trialling across a range of activities, an important part of the Redesigned approach is simplifying and focusing it operations, says Debenhams. To that end, the company has confirmed it will close its Eltham and Farnborough stores in line with its store review.
Looking ahead, Bucher acknowledges the environment “remains uncertain”, adding the company faces tough comparatives over the key Christmas weeks. “However, we are well prepared for peak trading and the early signs from our activity to date confirm that we are moving in the right direction towards a successful and profitable future for Debenhams,” he says.
However, Kate Ormrod, lead analyst at GlobalData, notes a weaker second half, with group GTV up just 0.8% and UK down 1%, means Debenhams goes into peak Christmas trading with a lack of momentum. “While its Redesigned strategy takes time to bed in, the last two months of 2017 will prove pivotal – with a need to lure shoppers from struggling rivals Next and M&S,” she says.
Meanwhile, Ormrod notes the update fails to address Debenhams’ strategy for clothing, the biggest part of its business and currently the biggest issue, with sales down 0.5%. “A swift but thoughtful appointment of a fashion and home division head is much needed, especially given that Debenhams is forecast to lose further market share in clothing this year,” she adds. “Investment in revamping stores, improving presentation and driving sales via mobile are all worthy strategies but unless product is on point, shoppers will still go elsewhere.
“Debenhams has confirmed that Ben de Lisi for Principles has been axed, and it now plans to launch a new trend-led range in 2018, though this will be a hard sell given that it will sit alongside other outdated and irrelevant private label brands.”
