Debenhams positive despite sales fall

Some rare good news from Debenhams, which has managed to boost profits despite falling sales...

Last Updated: 06 Nov 2012

Department store chain Debenhams said this morning that its pre-tax profits for the six months to February 28 were slightly up on the same period last year, despite same-store sales falling 3.6% (and even this wasn’t as bad as the City expected). The retailer said this was due to tighter cost and stock control, and suggested that the outlook for the business was pretty healthy: it’s expecting to create another 1,200 jobs in the next couple of years. But its £1bn debt pile is still giving investors the willies…

In today’s trading update, Debenhams said total sales were up 0.3% (so basically flat), but down nearly 4% for stores open more than a year. But the good news, as far as the City was concerned, is that profit margins are up – partly because customers are spending more each on each visit (0.3% more, to be precise), partly because it’s selling more of its higher-margin own-brand stuff (including the Designers at Debenhams ranges), and partly because management has been working hard to drive down costs and manage inventory better. That’s a pretty good result in the current high street climate.

In fact, Debenhams said today, it has ‘continued to take market share from its competitors in all major product categories, a positive trend which has now prevailed for 18 months’. And it’s been able to take advantage of other retailers’ misfortunes: notably, it’s bought a pile of stock and fittings from the administrators of Principles. All in all, this should result in a bottom line that looks healthier than it did this time last year – which, according to chief exec Rob Templeman, has been the focus all along.

The only slight worry is the debt levels the chain has been saddled with ever since its three-year period under private equity ownership. Debenhams insisted net debt has been reduced since last year (albeit without giving exact figures), but it refused to comment on reports that its bankers had turned their noses up at a planned cash call, which would have seen it raise fresh capital from its shareholders to pay down more of its debt. That’s presumably why its share price has dropped 12% today (although actually, this just takes it back to the level it was at on Monday morning, so we shouldn’t get too carried away).

With its ageing brand and high debt levels, some thought Debenhams might struggle if the high street really nosedived (as it indeed has). But judging by today’s figures, it’s actually looking a lot healthier than some...

In today's bulletin:

Sir Fred Goodwin has already taken £3m advance, says Myners
Could the Post Office become the Post Bank?
Debenhams positive despite sales fall
North Korea claims slice of the action
Trust in your management style

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Leadership lessons from Jürgen Klopp

The Liverpool manager exemplifies ‘the long win’, based not on results but on clarity of...

How to get a grip on stress

Once a zebra escapes the lion's jaws, it goes back to grazing peacefully. There's a...

A leadership thought: Treat your colleagues like customers

One minute briefing: Create a platform where others can see their success, says AVEVA CEO...

The ignominious death of Gordon Gekko

Profit at all costs is a defunct philosophy, and purpose a corporate superpower, argues this...

Gender bias is kept alive by those who think it is dead

Research: Greater representation of women does not automatically lead to equal treatment.

What I learned leading a Syrian bank through a civil war

Louai Al Roumani was CFO of Syria's largest private retail bank when the conflict broke...