Debenhams suffers profit decline in difficult year

Debenhams has reported a steep decline in full-year profits, topping off a difficult year for the retailer.

The department store chain, which has 240 stores in 28 countries, said pre-tax profits fell 24% to £105m during the year ended August 30, from £139m last year.

Debenhams shares have tumbled more than 20% this year after the retailer issued a profit warning in January, caused by the company having to heavily discount its products to shift stock.

Stiff competition from rivals such John Lewis has also hit the company hard.

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However, since the profit warning and the subsequent resignation of CFO Simon Herrick, Debenhams said it has made good progress in addressing operational issues.

"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 CEO Michael Sharp.

"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 fulfilment 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.”

Stephen Springham, a senior retail analyst at Planet Retail said Debenhams has had a year of two halves, starting with a “pretty horrible”, sales chasing first half, followed by a more measured H2, with a strong focus on tight stock and gross margin control, fewer promotions and better multi-channel execution.

“The slow process of weaning itself off promotions is taking root,” he added. "The summer clearance sale started a couple of weeks later this year and the transition to fewer promotional events appears not to have unduly alienated customers. But the acid test will be in the coming weeks in the run-up to Christmas.

“Rivals Next and John Lewis have already declared that fashion sales in the early part of the Autumn/Winter trading season have been completely derailed by the Indian summer. While an unusually-mild September may have been welcomed by the UK populace at large, spare a thought for fashion retailers trying to peddle jumpers and outerwear.” 

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