For most of 2017 the high street staple has really struggled, eventually hitting an 8 year nadir of 40p in early September. However, sterling’s sharp rise across that month helped revitalise the stock, with Debenhams Plc (LON:DEB) rapidly climbing to a 5 month high of 51p by the start of October. Since then it has pulled back slightly, and now sits at a current trading price of 46.88p.
Debenhams spent much of first 4 months of the year moving laterally, bouncing between 52.50p and 55p, only for its half year results towards the end of April to send it lower. There the company revealed a 6.4% slide in interim pre-tax profit to £87.8 million, while UK like-for-like sales were down 1.3%.
However, more notable than those figures was the announcement of a new strategy from CEO Sergio Bucher, who joined Debenhams from Amazon (NASDAQ:AMZN) last October. After polling 16000 shoppers Bucher unveiled a plan – called Debenhams Redesigned – to focus on turning the company’s stores into ‘social shopping’ hubs, with visits seen as a ‘fun leisure activity’.
This means more floor space dedicated to restaurants, beauty services like facials and manicures, and an upgraded online and mobile shopping platform. The number of products on offer would be cut by 10% to reduce store clutter, while it earmarked 10 department stores and 11 warehouses for potential closure.
Yet June’s third quarter statement showed what an uphill battle Bucher and Debenhams face if they are to turn the company around. Total sales dropped 1%, while like-for-likes were down 0.9% (and 2.4% on a constant currency basis) for the 15 weeks to mid-June. Bucher went on to warn that the ‘more volatile’ retail environment – currently plagued by falling real wages – could affect the firm’s full year profits.
Most recently in September the company updated on its restructuring plan, with Bucher creating 3 new divisions – Fashion and Home, Beauty and Beauty Services, and Food and Events – each coming with its own Executive Committee leader. This also led to the departure of trading director Suzanne Harlow after 23 years with the company, after Bucher eradicated her position.
In terms of next Thursday’s annual report, analysts are expecting pre-tax profit to slide 7% to £95 million, while like-for-likes are forecast to be on the wrong side of flat. The reaction to these results may be dependent on what kind of details Bucher offers up in regards to the progress of Debenhams Redesigned, especially the appointment of a new leader for the Fashion and Home division.
Debenhams PLC has a consensus rating of ‘Hold’ with an average target price of 48.21p.
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