Debenhams’ HY profit sinks on restructuring costs

Debenhams-London-signBritish department store Debenhams has unveiled an 84.6 per cent decline in its half-year before tax profits to £13.5m as the business spends up on repositioning its strategic focus.

Reporting financial results for the 26 weeks ended 3 March in the UK overnight, chief executive Sergio Bucher said the UK retail environment was undergoing “profound change” but that Debenhams was holding market share.

“The UK retail environment is undergoing profound change, and with the help of some important new senior hires, we are moving faster and working harder than ever to ensure Debenhams is well-placed to outperform in this new retail world,” he said.

“It has not been an easy first half and the extreme weather in the final week of the half had a material impact on our results.”

Late last year the British retailer opened its first store in Australia, but no detail was provided as to the performance of its presence Down Under so far.

Debenhams booked £28.7 million in costs associated with its strategic review and restructuring but underlying profit still declined by more than 50 per cent on a weak top line performance.

Group earnings before interest, tax, depreciation and amortisation (EBITDA) declined by 30.6 per cent to £103.5 million, while gross transaction value fell by 1.6 per cent to £1.65 billion.

Like-for-like sales declined by 2.8 per cent on a constant currency basis, impacted by extreme weather conditions necessitating the closure of 100 stores in the final week of the period.

Difficult trading over Christmas impacted earnings as competitors stepped up discounting, driving a 160-basis point decline in gross margins.

The department store expects its full year profit before tax to be in the lower end of £50 – £61 million.

Redesigning Debenhams

Bucher has signaled an acceleration in his strategy to reposition the struggling department store and has embarked on a hiring spree to bring new talent into the business while also making improvements to the company’s website and mobile platforms.

Digital growth was a bright spot for the business in the first-half, with sales up 9.7 per cent.

New store formats are also being trialed which include digitally integrated beauty halls as part of a plan to sustain the company’s leadership in the beauty category.

Accelerating cost cutting is also on the agenda – Debenhams is chasing £20 million in savings that were identified in January.

“Our digital growth continues to outpace the market while our store in Stevenage was recently named best new store at the Retail Week Awards,” Bucher said.

“We are holding share in a difficult fashion market, and in other categories such as furniture, exciting new partnerships have the potential to transform our offer.

“We approach the remainder of the year mindful of the very challenging market conditions, but with confidence that we have a strong team and the right plan to navigate them and return Debenhams to profitable growth,” he continued.

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