15th Apr 2014 11:11
LONDON (Alliance News) - Debenhams PLC Tuesday reported a drop in pretax profit for the first-half of its financial year as it again had to heavily discount to pull shoppers into its stores.
Revenue for the UK department store chain held up, as it recorded a slight increase in the value of transactions, but its margin was hit by the discounting, which declined by 100 basis points. Group like-for-like sales were up 1.5% in the period.
The retailer's shares rose Tuesday, as analysts had feared the update could be worse.
"Our disappointing first half performance was down to a combination of factors, including heavy discounting, below expectation clothing sales, higher markdowns, and over ambitious sales targets," said Chief Executive Officer Michael Sharp.
Debenhams also blamed a weak market in October and November, which left the retailer with more stock to clear than its peers, which it then had to discount further to shift.
Going forward, Debenhams pledged to do fewer small promotional sales, and focus just on its bigger events.
"We will be removing smaller promotions, and focus on bigger promotional events. It will then be clear in the calender when we are on promotion, and when we are not on promotion. We are going to stick with bigger events like the Blue Cross event," said Sharp Tuesday.
Debenhams left its interim dividend unchanged at 1.00 pence per share, as its pretax profit for the 26 weeks to March 1, dropped 25% to GBP85.2 million, down from GBP112.8 million a year earlier, despite an increase in revenues during the period.
Revenue for the first-half increased 2.1% to GBP1.30 billion, up from GBP1.28 billion the prior year, boosted by a 2.1% increase in the total value of transactions, and supported by stronger trading abroad.
"Our performance in the first half was not good enough, and we will be accelerating change... We are clear what the issues are," said Sharp.
British department store chain rival House of Fraser also announced its full-year trading performance Tuesday, reporting a 3.6% increase in sales on a like-for-like basis, excluding VAT, to GBP1.2 billion, for the year ended January 25, driven by its online business, and a gross profit of GBP430.6 million, up from GBP26.8 million a year earlier. It said that online sales, excluding VAT, increased 41% and repenting roughly 12% of total sales for the group.
The 165-year-old retailer, which has just sold an 89% stake in the company to a subsidiary of Chinese conglomerate Sanpower Group Co Ltd, run by founder Yuan Yafei, said that house brand sales and cash margin growth were up 13% and 20%, respectively, for the year.
The deal will see the House of Fraser significantly expand its business overseas, particularly in China.
Debenhams also outlined a number of other improvements and initiatives the retailer will be introducing to improve its multi-channel offer, including a stronger range of peak delivery options, and a next day click and collect option by Christmas.
"In time for Christmas trading this year, we will extend the next day delivery for home order cut off, and for Christmas there will be a next day click and collect service," added Sharp.
Debenhams said that 24% of all online orders were 'clicked and collected' in store in the six months to February.
The retailer said that it is currently in talks with a number of retail brands to extend its choice in its stores, and expects a number of trials to commence later this year.
Debenhams said that amongst other brands, it is in talks with Sports Direct International PLC about potential opportunities for Sports Direct sportswear within its Debenhams stores.
"Sportswear is an opportunity and we are discussing them. Our market share in sports is small, and they [Sports Direct] are good at it. We will update the market when we have something more to say on it," said Sharp.
Earlier this year, Sports Direct International PLC, the UK's biggest sporting goods retailer by revenue, sold its 4.6% stake it bought in Debenhams, and instead entered into an option agreement that will activate if Debenhams shares fall below a certain level in the future. Its maximum exposure to the option is about GBP64 million.
Debenhams also said that it will also be improving its food offering in its stores, to encourage shoppers to eat and then return back to their shopping trip.
"Every store will have at least one restaurant in store by this time next year, predominately a cafe," said Sharp.
Sharp said that this might include partnering up with a well-known high street coffee chain, but did not name who it might be.
"This could be provided by ourselves, but we are stretching to consider other food brands, particularly in the coffee market," said Sharp.
Debenhams' Chief Financial Officer Simon Herrick resigned in January, with Neil Kennedy assumed the role of acting CFO.
Debenhams trades as one of the biggest gainers on the FTSE 250 early Tuesday afternoon, up 4.0% at 80.6625 pence per share.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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