Wednesday newspaper share tips: Market got Debenhams wrong

On Tuesday the retailer reported solid Christmas trading, beating analysts’ expectations.

For the 19 weeks to 9 January, like-for-like sales were up 1.9%, comfortably beating expectations for a 0.1% drop and better than last year’s 0.8% decline.

Group transaction value rose by 2.5% and online sales were up 12.1%. Debenhams said the growth in Online reflects increasing customer confidence in its service as well as later cut-off times and more competitive premium delivery charges.

The company said further progress on its strategic priorities supported its performance, delivering "a good Black Friday" and full price sales growth across the period of 5%.

Tempus believes the market should have got Debenhams right.

“Its decent performance over the season was entirely down to management, under Michael Sharp, its departing chief executive, doing what it said it would.”

Tempus highlighted the retailer’s improvement from a low base in Denmark and Ireland, as well as a marginal rise in British like-for-like sales.

It also noted the number of promises the retailer made that it had fulfilled.

“Debenhams, as it said it would, is cutting the amount it discounts or sells on promotion, increasing the amount of stock that was shifted on a full-price basis by 5 per cent year-on-year.

“It is reducing the total amount of stock held, down 5 per cent year-on-year and 10 per cent on a two-year basis. It is reducing the proportion of sales from clothing, now 45 per cent, while building sales of more discretionary items, such as beauty products, gifts and homewares.”

With the company executing its strategy as it was laid out, leading to a positive Christmas trading result, Tempus rated the company at ‘buy long term’.

In The Telegraph, Questor thought the reaction to Greggs’ results was a bit overbaked.

The bakery chains posted a healthy 5.2% rise in sales for the 52 weeks to 2 January 2015, with full year results expected to be in line with expectations.

Statutory total sales for the 52 weeks of 2015 were up 3.7% against a 53 week year in 2014.

Greggs said a growing demand for “on the go” breakfasts was becoming a key sales point with early-morning coffee also becoming more popular, and plans to add “flat white” and an improved “mocha” coffee to its beverage offerings.

However shares closed down nearly 11% on Tuesday after the company’s like-for-like sales growth halved to 2.3% compared to the previous quarter.

But Questor said this isn’t the time to panic as the company’s long-term plan is still on track as it looks to open another 50 stores this year and upgrade another 200.

The column also said that the company should benefit from falling food prices which will help its bakeries produce more low-cost products.

Questor said the shares have had a good run.

“Markets had got ahead of themselves with the shares trading on 21 times forecast earnings.

“Having dropped 176p to £10.49 yesterday, the stock now trades on a more modest 18 times earnings.”

With good opportunities to return cash to shareholders in the future, Questor rated it at ‘long-term hold’.