With Dalton Philips’ departure from Morrisons making retail chief executive change a hot industry topic, how is Debenhams’ veteran Mike Sharp faring?

After the demise of Dalton Philips at Morrisons today, speculation has rapidly moved on to the future of his predecessor at Morrisons as CEO, one Marc Bolland, with big investors beginning to mutter that he is now “on borrowed time” at Marks & Spencer, after yet another disappointing Christmas.

But the biggest share-price fall today has been at Debenhams, where Mike Sharp has been CEO since September 2011 (having previously been appointed COO in 2004 and the Deputy CEO since November 2008), with full-year underlying pre-tax profits expected to be only £110m-115m, versus the £155-160m of four years ago.

In the light of the weak BRC Retail Sales figures for non-food announced today for last month, the hunt goes on for who the big loser was in non-food retailing at christmas (apart from Marks & Spencer), but at first glance today’s trading update from Debenhams (headlined “Focus on strategy delivers a strong Christmas”) seemed reassuring…

Now, Debenhams’ peer House of Fraser has a reputation for picking on the most flattering reporting periods, but Debenhams was not to be outdone, so it focused in today’s IMS on the 4 weeks to January 10 and boasted that LFL sales were up by 4.9% (with online sales up by 28.9%).

Warm weather had an impact on performance

Needless to say, Debenhams’ performance wasn’t so good over the 19 weeks to January 10, given the impact of the warm weather in September and October on outerwear trade, with like-for-like sales down by 0.8% (compared to City hopes of a 1% like-for-like sales rise) and online sales up by just 6% over that period.

Curiously enough, Debenhams said that their plan to reduce the amount of discount promotions held back online sales growth, as that is a more promotional channel, although the strengths of being a “multichannel” retailer came much more into their own as Christmas approached and Debenhams was able to push its improved “click-and-collect” and next-day delivery options.

However, despite claiming to have done less discounting at Christmas (contrary to what it seemed) Debenhams admitted that a strong performance from lower-margin categories through the period (such as beauty and some concession fashion brands), combined with “a challenging season in clothing”, will result in the gross margin being towards the lower end of guidance of the +10 to +40 bps for the year as a whole.

“Debenhams was able to say that its full-year profits guidance is broadly unchanged, but expectations were not exactly high in the first place”

Nick Bubb, retail analyst

Much as at Marks & Spencer, thanks to some cost-cutting and savings on “variable costs” (like online distribution costs, ironically), Debenhams was able to say today that its full-year profits guidance is broadly unchanged, but expectations were not exactly high in the first place and some brokers have still edged their profit forecasts down a bit.

Nevertheless, although the autumn season was clearly tough, given Debenhams’ reliance on clothing sales, the Christmas period wasn’t exactly a disaster for Debenhams, so the sharp share price reaction today seems harsh.

Debenhams does not look to have performed as well at Christmas as House of Fraser (which reported like-for-like sales for the 6 weeks to January 3rd up by 8.0% and cash gross margins up by 9.0%, with online sales up by 31.2%), but it did not undershoot John Lewis (which said that in the 5 weeks to Dec 27th sales were up by 4.8% like-for-like, with online sales up by 19%), despite John Lewis’s bias towards electricals.

Perhaps the real lesson here is that before judging the performance of management it is important to see the whole context and we haven’t yet seen how some of the privately owned fashion retailers (like Arcadia and River Island) did over the Christmas period. 

Funnily enough, one person who is very well placed to judge the performance of Mike Sharp at Debenhams is one of his bigger shareholders, one Mike Ashley, who is a very good friend of Sir Philip Green at Arcadia…

  • Nick Bubb has been a leading retailing analyst for over 30 years. He is a well-known commentator on UK retailing and is a founder member of the influential KPMG/Ipsos Retail Think-Tank.