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Debenhams annual pre-tax profits down 23.9 percent

23 Oct 2014

Fashion

REPORT_ UK department store group Debenhams has revealed an over 20 percent drop in its annual pre-tax profits for the 52 weeks to 30 August, 2014. The second biggest department chain in the UK reported pre-tax profit of 105.8 million for the group, which is said to be in line with analyst's forecast. Group like-for-like

sales increased 1 percent.

Online sales increased by 17.6 percent to 430.7 million pounds, accounting for 15.3 percent of the group's total

sales for the year, which is an increase of 13.2 from last year. Operating profit declined 17.2 percent; down 22.9 during the first half year but then improving 2.9 percent during the second half year. Net debt improved during the 52 weeks by 10.5 million pounds to 361.5 million pounds.

Chief executive officer at Debenhams, Michael Sharp noted that first half of the year was challenging, but that the group worked hard to address those issues, which is reflected in its profits. “After the challenges we faced in the first half, everyone in the business has been focused on addressing the issues we identified and on delivering on the priorities we set out in April to deliver long-term sustainable growth. Our performance in the second half reflects this with operating profit up on the previous year,” said Sharp.

"Making progress on strategic priorities"

"We achieved higher full price sales and fewer days on promotion as a result of greater clarity on our promotional calendar resulting in an improved gross margin. We have also made good progress on our work to drive better returns from our space. Developing a more convenient and competitive online fulfillment offer has been a key priority and we enter this year's peak trading period with a much improved range of delivery options. We expect further benefits to accrue from these priorities going forward.”

Sharp is “cautious” about the future, as trading continues to be affected by consumers' disposable income, which remains under pressure. The group's financial results for the year were off to a rocky start last year, when warm fall and winter sales hit its fashion sales during the run-up to the holiday season. “Customers tell us that although they are encouraged by economic improvements this has yet to translate into higher disposable income and the market remains tough.”

But the group managed to improved its overall performance during its second half following Sharp turnaround plane which included cost cutting measures, focus on full-price sales and new concession launches. “Refocusing of promotional strategy resulted in 10.6 percent increase in own brand full price sell-through in second half,” said the group in a statement on Thursday.

Debenhams, which currently has 245 stores in 28 countries, has been struggling over the past 12 months, as its shares dropped 44 percent when the group issued its second profit warning in less than a year last Christmas. “Whilst this has been a challenging year for Debenhams, the brand is strong and our improved second half performance gives us confidence that we are ready for the key Christmas period and can deliver sustainable growth over the longer term,” concluded Sharp.

Looking ahead to its next financial year, the group predicts that it could increase its profitability and expand its gross margin by 10 to 40 basis points, as Debenhams continues to scale back on its promotional activity and focuses on creating a more competitive business, both online and in store.

Debenhams