Debenhams hit by Berenberg downgrade

Department store Debenhams was under the cosh after Berenberg downgraded the stock to ‘sell’ from ‘hold’ and cut the price target to 46p from 75p.

It said the UK market share and top-line growth are under threat, hindered by an undifferentiated customer proposition to that of peers in an increasingly competitive market.

In addition, the bank pointed out that Debenhams is severely structurally challenged by prohibitively long store leases, which restrict it from adapting to declining footfall and the transition of sales online.

Berenberg acknowledged the opportunity in international markets online, which is the group’s fastest-growing division, but said this will be limited until further investments are made to its proposition.

The bank noted Debenhams has suffered four consecutive years of UK store like-for-like sales decline amid fierce competition in the retail sector and evolving consumer behaviour.

“As its online sales lose momentum and the off-line department store market in the UK continues to shrink as a proportion of the non-food retailing market, we forecast that UK gross transaction value growth will slow from 1.4% over the last three years to a 0.7% three-year compound annual growth rate.”

Berenberg said Debenhams’ inferior customer proposition will continue to deliver weak top-line growth. In particular, it highlighted serious shortcomings in the company’s service, product, e-commerce proposition, and the location of its stores.

At 0915 GMT, the shares were down 3.6% to 52.78p.