Debenhams has posted its biggest statutory loss on record and revealed plans to close 50 stores. Here are the City’s divided reactions to the results.
Harsha Wickremasinghe, head of business intelligence, Livingstone
“The embattled retailer has outlined hard-hitting plans to transform itself into a relevant retail entity for the 21st century… but it smacks of desperation and begs the question as to why it has taken so long to address basic issues.
“Debenhams sits firmly in the squeezed middle and its lacklustre stores, uninspiring brand mix and poor digital capabilities has left it woefully exposed at a time of intense structural change in retail. This has inevitably enabled more focused competitors to rip chunks out of its soft, bloated underbelly.
“The new concept store is a good start. Culling 50 stores shows how years of underinvestment has taken its toll on yet another legacy retailer, which has simply lost its focus and risks losing its relevance entirely if it fails to adapt in short order.”
Adam Tomlinson, analyst, Liberum
”The significant action we have been asking for has clearly been announced and we are encouraged by the more aggressive restructuring strategy to reposition the business.
“The fact that the dividend has been cut should have been expected so this should be seen positively as a balance sheet strengthening point as oppose to disappointment in the lack of income.
“To execute the scale of the change will not be straightforward. The release of £350m by FY20E, if delivered, could underpin the current valuation. Whilst there is a lot of detail to go through and the impact on forecasts to consider, we are encouraged by today’s announcement and the potential future cash flow improvement suggests a hold is now warranted.”
Sofie Willmott, senior retail analyst, GlobalData
“Although the Debenhams’ Redesigned strategy targets its problem areas, we are yet to see clear evidence that it is paying off, with the retailer’s sales and share price following the same downward trajectory over the past year.
“Reducing its store estate will allow the brand to focus on its biggest cash-driving branches but remodelling 100 stores – as the retailer is likely to want to do following the ‘store of the future’ template being trialled in Watford – is going to be a costly business.
“Its announcement that it will slash capital expenditure by 50% in the 2019 financial year makes it difficult to see how it will be able to replicate the Watford ‘wow’ factor across its estate.’’
“To invest in Debenhams equity, you need to believe in a 2019 financial year profit rebound and an industry backdrop kind enough for it to trade its way out of its current financial position, plus disposal of Magasin du Nord. If all that happens, we see material upside to the share price.
”Share price is expected to remain volatile but on balance, there is some positive news in today’s statement.”
Fiona Cincotta, senior market analyst, City Index
“Like Mothercare and Carpetright before it, Debenhams is trying to press the re-set button by dramatically shrinking its store footprint. Optimists will style the move as a reboot of a strong and trusted brand, but it looks more like a bout of emergency surgery on a business on the brink.
“To survive on today’s high street, it helps to be fast a la Zara, cheap a la Primark or original a la Ted Baker. Debenhams is none of those things at the moment.
“Debenhams may well get through this restructure and emerge in five years’ time as a leaner, meaner, more attractive and more innovative retailer. But getting there will be far from easy.
“Management will somehow have to successfully release enough capital to improve the business, while at the same time slashing costs and covering what could be thousands of staff redundancy payouts.”
Laith Khalaf, senior analyst, Hargreaves Lansdown
“The Debenhams share price has lost four-fifths of its value in the last year, and no doubt some will be wondering if we are now near the bottom.
“Despite the dramatic drop, this is still a business in a state of transition, and while the upside could be considerable if Debenhams turns things around, there is still a risk of further losses, particularly given the fragile and dynamic consumer environment.”