Debenhams' profits dive as House of Fraser sales hit record

The department store has promised decisive action. Shareholders are appeased for now.

by Rachel Savage
Last Updated: 24 Mar 2015

Debenhams had a pretty unhappy new year, predicting in December its half year profits would plunge by a quarter, its second profit warning in a year. However, getting the bad news off its chest early may have actually paid off.

Results were as bad as the department store had warned: pre-tax profits fell 24.5% to £85.2m in the 26 weeks to March 1 despite like-for-like sales rising 1.5%, after Christmas promotions slashed margins.

Nonetheless, shares were actually up almost 3.5% in mid morning trading – investors were clearly relieved there were no nasty surprises buried in the figures. However, they still have plenty of ground to make up, having plunged more than 25% in the last six months.

Chief exec Michael Sharp admitted it had been a ‘challenging first half’, but claimed the company was ‘taking decisive action’. Fewer flash sales are probably in order.

Some unflattering comparatives also surfaced today from House of Fraser, which was bought over the weekend by Chinese conglomerate Sanpower in a £480m deal. The department store reported record gross annual profits of £430.6m, up 6% in the year to 25 January.

House of Fraser’s sales also hit a record high, up 3.6% on a like-for-like basis to £1.2bn. That was helped along by online sales, which soared 41% to make up 12.2% of revenue. In fact, the department store’s internet sales are so impressive that it even gets compared to Asos.

In contrast, while Debenhams’ online sales grew a still respectable 24% to make up 15.4% of its total, the retailer admitted its bricks and mortar stores were being ‘impacted by lower footfall’ as customers shopped from the comfort of their homes.

Meanwhile, retail sales looked like they took a thumping in March, down 1.7% from last year on a like-for-like basis, according to the British Retail Consortium and KPMG sales monitor. However, that was actually a smaller fall than expected, given the late timing of Easter and, as the graph below shows, retail is prone to pretty sharp seasonal swings.

Debenhams had better keep up that ‘decisive action’ if it’s not going to fall behind the curve then.

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