22nd Oct 2015 09:42
LONDON (Alliance News) - Debenhams PLC on Thursday reported its first annual profit growth in three years in its recently-ended financial year, as it announced that Chief Executive Michael Sharp will step down from his role in 2016.
Shares in Debenhams were trading up 4.2% at 84.55 pence Thursday morning, the third best performer in the FTSE 250.
The department store operator reported a 7.3% rise in pretax profit in the year ended August 29 to GBP113.5 million from GBP105.8 million the year before, which came in slightly ahead of analyst expectations, and was its first annual profit increase in three years. Revenue grew slightly to GBP2.32 billion from GBP2.31 billion, as like-for-like sales increased 0.6%.
Debenhams said the improvement in profit resulted from good progress made against its strategic priorities, including cutting down on sales promotions and tightly controlling stock, which led to a 90 basis points improvement in gross margin rate.
The company has been refocusing its promotional strategy in order to increase full-price sales and run fewer promotions and discounts. In the full-year, Debenhams achieved a 7% increase in own-brand full-price sell-through, following a reduction of 17 days in the promotional calendar, with a total reduction of 42 days since spring 2014.
Tight stock management also delivered a 4.1% reduction in year-end closing stock, Debenhams said.
The retailer added that its space optimisation trials are moving to a roll-out, with 35% of targeted space now filled. It plans to fill 50% of an identified one million square feet by April 2016, which it said it is on track to achieve, by opening concessions within its stores. Concession stores include fashion retailer Monsoon, Sports Direct, BHS Lighting, Patisserie Valerie and Chi Kitchen, an exclusive-to-Debenhams pan-Asian cuisine offer from the owners of Thai restaurant Mango Tree.
Debenhams also announced that it is expanding internationally in Vietnam and Australia. It said it has signed an agreement with Pepkor SE Asia, a subsidiary of the Steinhoff Group, to initially distribute selected brands in Pepkor's Harris Scarfe stores in Australia, and then eventually through Debenhams franchise stores. A new localised Australian website will also be launched in the 2016 financial year.
In Vietnam, it will sell some of its brands through department stores owned by VinGroup.
Speaking about the UK government's planned introduction of a national living wage from next April, Debenhams said it estimates this will cost the company around GBP3 million in financial 2016 and GBP8 million in financial 2017. However, it said that productivity gains will mitigate the majority of the costs.
Debenhams declared a final dividend of 2.4 pence, maintaining its full-year dividend at 3.4p.
"We have delivered profits in line with market expectations, reflecting further progress against our strategic priorities. We have had an encouraging start to the year, with strong new product launches which have been well received by our customers, and we are in good shape to build on last year's strong performance over peak trading," Sharp said in a statement.
"Consequently, we are increasingly confident in the direction of the business and as a result we will accelerate our new initiatives, such as the roll-out of our successful space optimisation trials and new international growth opportunities. We have clear priorities for the uses of cash and our continued strong cash generation has enabled us to improve our leverage target and to adopt a progressive dividend policy as future earnings increase," he added.
In a separate statement, Debenhams revealed that Sharp, who has been CEO of the company since 2011, will resign in 2016. He said he had always intended on leaving after five years in the role, and will assist the board in choosing a successor.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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