Debenhams profits slump on restructuring costs

Debenhams' profits have plunged by 44pc after the department store counted the heavy costs of a new turnaround strategy designed to lure more shoppers with revamped beauty services.
Pre-tax profits tumbled from ?105.8m to ?59m in the year to Sep 2. The heavy fall follows ?36.2m of exceptional costs from shutting ten warehouses, pulling out of four international franchises, two store closures, redundancies, and the broader costs related to its new strategy. Underlying profits were 16.6pc lower at ?95.2m.
Sergio Bucher, who has now been at the helm of the retailer for a year since joining from Amazon Fashion, said that the business had made “good progress” on his “Debenhams Redesigned” strategy.
The retail boss said that trading in the second half of the year had been tougher “and the only thing that we can predict is it will be volatile in the future”.
Group sales rose by 2pc to ?2.9bn, helped by strong 11pc growth in its international arm, which includes its Magasin Du Nord business in Denmark. UK sales flatlined at ?2.4bn.
Debenhams profits slump on restructuring costs

Debenhams clothing sales fell as the fashion market comes under pressure
Debenhams’ UK business was boosted by an 8pc rise in beauty sales and 5pc growth in food sales, thanks to its new restaurant openings, which helped offset a 0.5pc drop in clothing sales.
Debenhams is now focused on sprucing up its beauty halls and services to lure more shoppers and recently bought a minority stake in blow-dry business Blow Ltd, which will expand its at-home service across the country and open salons inside Debenhams shops.
However, the retailer admitted that the new focus on beauty was partly to blame for a slip in gross margins as makeup sales, whilst growing, generate less profits than coats, dresses and handbags.
Debenhams also announced a partnership with mobile business Mobify to speed up its mobile websites and said that it would trial two Sweat! gyms as a way to fill excess space in its shops.
The department store chain said that it had identified ten of its 246 shops which were at risk of becoming unprofitable in the near future should footfall continue to dwindle.  Like-for-like store sales dropped by 1.2pc during the year.  
Debenhams share price
Debenhams has little flexibility about store closures as the bulk of its shops are tied into long lease lengths. However, it has renegotiated terms with landlords on its Uxbridge shop to reduce its floor space and have a capital contribution to help fund a refurbishment.
"In the short-term at least, Mr Bucher has little choice but to play the cards he’s been dealt, and filling up excess sales space with gyms, restaurants and other social spaces will have to do," said George Salmon, analyst at Hargreaves Lansdown. "The one ace up his sleeve is the group’s excellent cash generation. This not only helps underpin the dividend in the near term, it should provide a means to get these various new initiatives up and running.”
Debenhams announced a 3.4p dividend per share and said that it now had a pension surplus of ?80.9m. 
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