13th Jan 2015 09:23
LONDON (Alliance News) - Debenhams PLC Tuesday reported good sales growth for the key Christmas trading period, and crucially said it had been less reliant on discounting to pull shoppers into its stores, although it warned that margin growth had been capped as sales of low-margin products were particularly strong.
However, like peers, the company also warned that its autumn sales had been hit by unseasonably warm weather which stopped consumers heading to stores for winter clothing ranges. This sent the retailer's shares down 8.1% to 68.95 pence, making it the worst performing stock on the FTSE 250, as its like-for-like sales figures missed analyst expectations.
The department store operator was criticised for being one of the biggest discounters in the run up to Christmas 2013, a move that many competitors were forced to follow with a subsequent hit on margins.
In its trading statement Tuesday, Debenhams said like-for-like sales in the four weeks to January 10 rose 4.9% on the year, driven particularly by online sales which grew 28.9%. It said sales in 'Black Friday' week rose 10.3% thanks partly to its promotional event and online orders on Black Friday itself were up 125%. However, for the four weeks as a whole, it had 10 fewer days on promotion and it reported a 12.1% increase in own bought full-price sell-through. Unlike last year, it said it did not start its sales before Boxing Day.
"I think although trading continued to be challenging in the run up to Christmas, our performance accelerated as the diversity of our product mix gave us a greater resilience," Chief Executive Michael Sharp told journalists.
Despite this, the company warned that gross margins will come in towards the lower end of its guidance for an increase of between 10 and 40 basis points, because sales of low-margin products like beauty products and sales of concession brands were strong and clothing sales were challenging.
"We are now saying that we expects margin guidance at the lower end of that range due to challenges in the clothing market, relative strength of beauty which comes from a lower margin and also because of some concessions which performed better than others, particularly online," said Sharp.
It added that it had also kept a tight control on costs, and hence cost growth will be towards the lower end of its guidance for between a 2% to 4% increase.
Debenhams performed less well in the 19 weeks to January 10, as, like peers, it said clothing sales were hit by the warm autumn weather. Like-for-like sales actually declined 0.8%, while online sales were up 6.0%. Gross transaction value rose a modest 0.2%, compared with 5.9% in the last four weeks of the period. The decline in like-for-like sales for the 19 week period came in below analyst expectations, which were expecting just short of 1% growth.
"Our performance for the 19 weeks to 10 January reflects the well-documented challenges in the clothing market and our strategy to be less promotional as part of our ongoing focus to increase the percentage of full price sales. Fewer promotions inevitably led to a slowing in the rate of sales growth online given that it is an inherently more promotional channel," Debenhams said in its statement.
However, Sharp was more pleased with the company's performance over Christmas.
"I am pleased with our performance in the critical Christmas trading weeks, driven by our strength in a diverse range of product categories and a strong marketing campaign focussed on gifting. Our performance steadily improved following the well documented challenges in the clothing market in the autumn," he said.
Debenhams is in the middle of trialling concessions with several big retailers to help utilise extra space within its store and improve its offering. Its trialling concessions with Monsoon, Mothercare PLC, Sports Direct International PLC and Whitbread PLC-owned coffee chain Costa. Sharp told journalists Tuesday that he will now begin discussing possible roll-out of either all or some of those concessions.
By Steve McGrath and Rowena Harris-Doughty; [email protected]; @stevemcgrath1; [email protected]; @rharrisdoughty
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