A flurry of promotions hit Debenhams’ half year results, with the department store group reporting a 24.5% fall in pre tax profit. Retail Week rounds up what the analysts are saying.
“There appears to be no change in top-line strategy objectives, though there is some tweaking in emphasis. Management still believes promotions are a strength, but will introduce clearer promotional periods with fewer markdown days. It will offer more competitive online service options by Xmas, which is a necessity given consumer demands. It will also introduce wholesale and licencing models internationally. We are unconvinced there is a quick fix and believe the investment needed will hold back profits, though we can see a small bounce in FY15E profits from lower markdown. We believe management should cut back on promotions and invest in product quality as the brands have been devalued by all the discounting.” – Kate Calvert, Investec
“Results were impacted by the mild weather in October and November, which affected sales of knitwear and coats. This led to heavier discounting in the lead up to Christmas, including several unscheduled ‘Blue Cross’ weekends and the need for additional mark-down activity post-Christmas to clear stocks. Gross margins, as a consequence, declined by 100bps (guidance -80bps to -100bps). The better than expected sales in January and February we believe, has enabled the company to clear stock at the end of the half.” – Freddie George, Cantor
“With first half profits down by a quarter, as expected, these results have not been a very positive set for Debenhams. However, learning has been taken and is being acted upon, with commitment to improve multichannel efficiencies and better manage promotional activity being laudable. In a highly competitive marketplace with multichannel behemoths like John Lewis and Next, Debenhams’ market will remain challenging, but with continued initiatives bringing its brand-led proposition up to speed it isn’t out of the race quite yet.” - Liz Faulkner, Conlumino
“What has gone wrong? The most obvious manifestation of malaise is the level of in-store promotional activity. Originally a strategy to excite shoppers, generate footfall and drive volumes, we are now at the point of overkill – shoppers are suffering from promotion fatigue, footfall is gravitating towards competitors with a much clearer pricing message (e.g. Next) and volumes are under pressure. And, of course, the more price points are shifting downwards, the greater the margin erosion (gross margins declined by a hefty 100 bps this half). In short, Debenhams is facing the double whammy of selling less and what it does sell is shifting at lower margin. It is a dangerous downward spiral.” - Stephen Springham, Planet Retail