Debenhams’ revamp fails to pay off in first year as profits plunge 85%

Debenhams has reported plunging profits in the first half of its financial year after a ‘disappointing’ Christmas and significant sales shock during the recent cold snap.

Pre-tax profits in the 26 weeks up to March 2018 fell 84.6 per cent down to £13.5 million the department store said, down from £87.8 million in the same period a year before.

It said the ‘challenging’ UK market saw like-for-like sales in the six month period drop 2.2 per cent, with the ‘Beast from the East’ forcing 100 stores to close and contributing around 1 per cent of the sales drop.

The group added it also saw disappointing sales over Christmas as other big stores offered generous discounts, but did see a 9.7 per cent annual rise in digital sales.

As sales and profits struggled, the group’s debt continued to rise and ended the period 14.4 per cent higher at £248.2 million.

Chief executive Sergio Bucher said the group was working ‘harder than ever’ to ensure the brand can outperform in a ‘new retail world’.

He slashed the dividend by 51 per cent to 0.5p a share – with the share price tumbling 10 per cent in early trading on Thursday. 

‘We expect no help from the external environment, so we are focused on delivering our Debenhams Redesigned strategy, aiming to mitigate difficult trading conditions through self-help initiatives,’ Bucher 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. But I am hugely encouraged by the progress we are making to transform Debenhams for our customers,’ he added.

‘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.’

The poor first half results come just two months after Debenhams announced plans to reduce management roles by a quarter, with 320 roles to be made redundant in efforts to trim costs.

In its results on Thursday, the group listed five key priorities to get the stores back on track, including an emphasis on increasing sales via mobile technology, more customer engagement and a reduction of costs.

A new store format, already rolled out to around 35 per cent of Debenham sites, is also proving popular the group said while it has big hopes for a new ‘[email protected]’ collaboration.

Russ Mould, investment director at AJ Bell, suggested Bucher’s redesign plan for the stores has not yet paid off and the grim profits shows ‘how serious Debenham’s competitive position really is’.

‘One year after launching his Debenhams Redesigned strategy, Sergio Bucher, the company’s boss, must be wondering what he has let himself in for by taking the job, as today’s first-half interims show falling profits, rising debt and a slashed dividend, while the departure of his chief financial office for Selfridges is hardly a vote of confidence either,’ Mould said.

He added: ‘While 12 months is not a fair time period by which to judge any strategy, it is clear that a combination of Debenhams’ historic reliance on its ‘Blue Cross’ price promotions, excess floor space and a web offering that needs more work are combining to confound the Bucher plan.’