HSBC downgrades Debenhams on digital concerns

Incoming Debenhams boss Sergio Bucher will have a fight on his hands if he wants to turn around the company’s fortunes before its interim results are published next April, according to stock analysts at HSBC.

In a research note published on Friday, the bank said that the third quarter slowdown looks set to continue into the fourth quarter, causing a risk to earnings and has duly lowered its pre-tax profit estimates from 2016 to 2018 by between 1 and 8%.

HSBC expressed concerns over the long lease lengths of Debenhams’ 165 stores, which would make it harder for the retailer to close shops as consumers move online.

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The average lease length of its stores is 22 years, compared with an average seven or eight years for Marks & Spencer and Next.

Downgrading Debenhams to ‘reduce’ from ‘hold’, HSBC said: “Debenhams has less flexibility to reduce fixed costs to adapt to a rapidly evolving, increasingly competitive omni-channel market.”

The bank said Bucher, who starts work next month, will not be able to map out a clear plan to turn around the business before its interim results next April, reports the London Evening Standard.

Canadian bank RBC has also downgraded Debenhams this year, saying the company would see a higher risk to its like-for-sales than average due to sourcing its goods in dollars, and intensifying price competition between middle-market retailers.

Sergio Bucher starts in his new role as Debenhams CEO next month.

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