20th Jun 2014 09:18
LONDON (Alliance News) - High-street department store chain Debenhams PLC Friday said like-for-like sales rose slightly in the first 14 weeks of the second half of its financial year, supported by an increase in the gross value of transactions and a shift in strategy to reduce the level of promotions.
Debenhams said like-for-like sales were up 0.7% in the 14 weeks to June 7, as it recorded a 1.6% increase in gross transaction value, which are sales on a gross basis before adjusting for concessions, consignments and staff discounts.
"We expect our revised promotional strategy will continue to result in lower markdown leading to a stronger gross margin performance for the second half," the company said in a statement.
Debenhams said its gross margin guidance for the full year remains unchanged, as it still expects to see a decline in margins of between 50 to 70 basis points, hit by heavy discounting earlier in the year, but supported by lower markdown in the second half of the year.
Back in April, the retailer reported a drop in profits for the first half of the year and weak margins as it again had to heavily discount to pull shoppers into its stores. It said its disappointing first half performance was caused by a combination of factors, including heavy discounting, below expectation clothing sales, higher markdowns, and over ambitious sales target.
Going forward, Debenhams Chief Executive Michael Sharp has pledged to do fewer small promotional sales, and focus just on its bigger events such as its 'Blue Cross' sale event, in hope of selling more full-priced goods. In line with this, Debenhams decided to delay its big summer sale by two weeks.
The retailer also said that it will tolerate market share losses for an improvement in cash gross profit, with the aim to improve margins through lower markdown in the medium term.
"We are working hard to address the challenges from first half of the year. Remember, we are starting our summer sale two weeks later than usual and our peers," said Sharp.
Sharp set out his five strategic priorities in April, which besides reducing the number of smaller promotions held, also included investing in its multi-channel offer, drive a better return on stores by redeploying excess space, accelerate international growth, and improving operational effectiveness.
"Although early days, this strategy is delivering higher full-price sales, and we expect to see the benefit through gross margin progression in the second half of the year and in 2015," Sharp told journalists in a call Friday.
But the company's shift in focus away from sales growth towards cash gross profit will take time.
"We are unconvinced there is a quick fix and believe the investment needed to make its offer more attractive will hold back profits, though we can see a small bounce in FY15 profits from lower markdowns," said Investec Securities Analyst Kate Calevert in a Friday.
In the year to date, Debenhams said like-for-like sales were up 1.3% in the 40 weeks to June 7.
"Despite the UK high street remaining highly competitive, we have seen a slowing in the rate of sales decline in our UK stores compared with the first half of the year, aided by the performance of Oxford Street," the company said.
Despite the slight uptick in sales during the 14 week period, Debenhams is still struggling to compete against rivals such as Next PLC and House of Fraser.
In the 13 weeks to April 16, Next posted an 11% rise in brand sales, driven by an 8.8% increase in retail sales from its stores, and sales from its online and catalogue business called Next Directory up almost 14%. Next also raised its profit and sales guidance forecasts for the full year.
Debenhams said it continued to see growth in online sales, supported by strong growth in Click & Collect sales, and an increase in the sale of full-priced products.
"The online business continues to grow with profitability already benefiting from the refocusing of promotions. We have seen a slowing in the rate of sales growth online, but this is only to be expected given the level of promotions we ran during the period last year as we sought to clear excess stock," Debenhams said.
Online sales increased by 10% during the 14-week period, while representing just over 15% of total sales for the group.
Debenhams said it also saw a strong performance from its international business.
"We are continuing to leverage our customer proposition and retail experience to accelerate international growth and have seen good results in the second half to date," it said.
As well as extending its range of peak delivery options, and a next day Click & Collect option by Christmas, Debenhams had promised to improve its food offering in its stores, to encourage shoppers to eat and then return back to their shopping trip, stating that every Debenhams store will have at least one restaurant in store by this time next year, predominately a cafe.
Debenhams said Friday that it will be launching trial concessions to optimise space in its UK stores with sports product retailer Sports Direct International PLC, and with coffee chain Costa, owned by Whitbread PLC, before year end, stating that the two trials are "one of a number of initiatives they are working on".
"Customers said they wanted to see more sports products from us, so we are bringing in Sports Direct to fill that gap," said Sharp, stating that the collections will be more biased towards womenswear and menswear rather than youth.
Sharp said it is currently in discussions with a number of other brands, but would not guide on what type of retailers they may be.
"Any brands we trial will make sense from what our customers tell us they want at Debenhams," Sharp added.
Debenhams said it will open two sports concessions with Sports Direct in its stores in Harrow and Southsea during August, and said it may roll-out more before the end of the year. It said it will launch six Costa concessions during June and July.
Back in January, Sports Direct International PLC bought a 4.6% stake in Debenhams, then sold it just three days later and replaced it with an option agreement that will activate if Debenhams shares fall below a certain level in the future. Its maximum exposure to the option is around GBP64 million.
In a separate statement, Debenhams said it will be launching an offer of GBP200 million senior notes due 2021, proceeds it said it will used to prepay existing credit facilities and to pay the fees and expenses related to the offering and sale of the notes.
Debenhams shares were off 1.1% at 71.30 pence Friday morning.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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