Debenhams Trading Update and Overall Performance
By on August 9, 2016 in News
With the announcement by Debenhams about the retail store's trading update, a clear picture for the last 15 weeks ending June 11 is now very clear. Online sales went up by 7 percent why LFL sales went up by a meagre 0.2 percent. Within the 15 week time frame, there was an increase on the value of gross transaction by 0.5 percent, which took the YOY cumulative performance to an increase of 1.3 percent. With the introduction of the National Living Wage Debenhams expects some impact on its growth, including some unpredictable trading effects from the current environment. The retailer is however hopeful its full year growth and overall results will remain within its expectations.
According to Michael Sharp, the Chief executive their strategy is expected to remain unchanged. In addition, progress is expected to be extended to non-clothing areas while service improvement is expected for multichannel buyers, at the same time offering a vast array of services and products in a space that has been under optimised somewhat. Debenhams has also responded to the uncertain trading environment within the current period mostly in clothing by focusing on generating cash margins and stock.
Fallen shares after dropped sales report
The 0.2 percent reduction in like-for-like sales has not been without consequences. While even H&M registered a 17% decrease in sales almost within the same period, Debenhams continue to rue the uncertain UK trading environment that started at the beginning of 2016. While clothing sales remained weak, non-clothing sales seems to have had an effect on its profits that seems to have stopped dipping even lower, especially beauty and health sales. The results, according to analysts seem to indicate how tough conditions remain on the UK high street. Investors are expected to demand that Debenhams keeps a tight leash on cost, even as pre-tax profits are expected to remain around £119m.
Debenhams has promised to remain focuses on their already clear strategic priorities and responding to the volatile trading conditions while ensuring costs remain tight, margins are managed and cash generation driven better. After tightening its initial buy, Debenhams is also working towards managing seasonal stocks, more so womenswear as well as selected promotions. All these would help the company to stick within its plan of ending the year in a better position.
The 7 percent Debenhams online sales growth compares with the cumulative yearly online sales growth of 9.1 percent. The company continues to register promising trends in the area of mobile that currently stands at 50 percent of all orders online within the UK as well as a solid 19 percent increase in Click and Collect. As Michael Sharp departs and Sergio Bucher takes the helm, the group is confident of a better and strong execution of its strategy as it seeks to fire up its sales and growth.
Sergio is expected to take the mantle from October 2016. The new CEO has been serving as Amazon Fashion Europe vice president and has been instrumental in making it one of the top European fashion retailers since 2013. Sergio has also worked as Puma's worldwide e-commerce, retail and general manager as well as holding retail management roles in Inditex and Nike.
Sergio Bucher was announced by the chairman, Sir Ian Cheshire who indicated how rigorous the recruitment process was and out of a host of exceptional candidates Bucher's ecommerce expertise and experience, global understanding including obvious leadership qualities made him stand out. As Debenhams seeks to be the top international multichannel retailer, Sergio is expected to play a critical role. Considering the retailer had a 7 percent increase in online sales it's expected that with the spectre having passed to Sergio who has a widespread experience in this area the group will see further growth in the coming months.
Early in the year a new international director, David Smith, had been appointed, who was the Body Shop International MD in the Asia Pacific and was slated to join Debenhams by May.
Boosting furniture growth
One of the expected strategies after flat profits and lower sales is boosting its furniture sector as other areas registered weak sales such as clothing and the decision by shoppers to spend most on holidays. The department store chain has different stores selling furniture with some having really small furniture displays; the store chain has been trying out two unique displays of furniture in Gateshead and Manchester as another six display concepts are expected to have been introduced by the 2016 Winter/Autumn peek season.
In April, Debenhams reported a 5.5 percent pre-tax profit rise to £93.8 million for the half year ending February 27th, 2016. LFL sales and transaction value were both relatively up. At the time the chief executive had reported a stronger performance in operations giving the retail chain a unique record Christmas, including more growth in its profits in the first half in contrast with the 2014 performance at the same time. This was alluded to the encouraging response by customers to Debenhams multichannel strategy including the compelling mix of brands and products and their monetary value. At the time Michael Sharp, the outgoing chief executive had indicated the group had a lot to carry out but remained on track in working hard to deliver its expected full year results.
Between August 2013 to August 2015, Debenhams turnover went up from £2,282 million in 2013, £2,313 million in 2014, and £2,323m in 2015. Around the same time operating profit has been fluctuating, from £155m in 2013, £124m in 2014 and £134m in 2015. Net profit after taxes around the same time stood at £116m in 2013, £87m in 2014 and £94m in 2015.
On the International division, the retail chain has had mixed performance but with constant growth in currency sales from year to year and a positive foreign exchange impact. Global online growth has continued to show growth solidly although from a rather small base with the support mostly being Debenhams new online platform.
With the entry of Sergio Bucher and his online ecommerce experience, Debenhams is expected to leverage online sales and growth while boosting its various areas of product offering such as furniture, low performers like clothes and enhance better performers even further such as health and beauty.