Debenhams profit drops but outlook upbeat

Department store chain Debenhams reported a drop in full-year profit on Thursday but sounded an upbeat note on its outlook.

In the 52 weeks to 2 September, underlying pre-tax profit fell 16.6% to £95.2m, while reported pre-tax profit was down 44.2% to £59m, as the company booked exceptional charges of £36.2m related to its Debenhams Redesigned strategy.

Like-for-like sales grew 2.1% but were flat in the UK. Beauty sales were up 5%, while food sales rose 8% and clothing declined 0.5%, broadly in line with the UK market. Meanwhile, digital sales increased 12.7%, driven by mobile orders up 57% in the UK.

The company said its gross margin rate was down 30 basis points in the period, in line with guidance, as the depreciation of the pound pushes up input costs.

Chief executive officer Sergio Bucher said: “We are making good progress with implementing our new strategy, Debenhams Redesigned, and are encouraged by the results from our initial trials, as well as the number of exciting new partners who want to work with us. There is a lot to do but I am delighted with the enthusiasm and flair shown by my colleagues as we embark on this journey. I'd like to thank the whole team for delivering these results against a background of rapid change in the business.

"The environment remains uncertain and we face tough comparatives over the key Christmas weeks. However, we are well prepared for peak trading and the early signs from our activity to date confirm that we are moving in the right direction towards a successful and profitable future for Debenhams."

Neil Wilson, senior market analyst at ETX Capital, said: “Debenhams would appear to embody many of the struggles facing the high street. Shoppers are going online; the weak pound is pushing up input costs, hitting margins; and labour costs are rising. The answer for Debenhams at least is to get its mobile shopping experience better than anyone else. With sales growth of 57% in this segment it looks like it’s on the right track.”

At 0855 BST, the shares were up 1.1% to 46.50p.