Shares in Debenhams leapt this morning on solid annual results. But analysts are still waiting to see what the new chief exec will do
Department store Debenhams' share price headed north by nearly four per cent this morning after revealing a decline in full year profits that still beat analyst expectations.
The figures
Gross transactional values, basically the company's sales before taking into account discounting, were up by 1.3 per cent to £2.9bn. However revenues – what it says on the tin, the actual value of what the company sold – were down by 0.5 per cent at £2.3bn.
Earnings were down by 2.2 per cent at £233m, with operating profit down 5.6 per cent at £127m.
Profit before tax received a blow from exceptional items as it fell by 10.4 per cent to £102m.
Read more: Debenhams' boss in the spotlight over pension fund woes
Making good on the company pension scheme is costing Debenhams £9.5m per year, which will increase in line with inflation.
Because of the way the days fall, Debenhams reported a 53-week year but included a 52-week comparative. So all of the above comparisons are made to a 52-week numbers.
The company's debt balance decreased from £320m to £279m, meaning that its earnings to leverage multiple – in other words how many years of earnings it would need to generate to pay off its debt – dropped from 1.3 to 1.2.
Why it's interesting
British retailers are facing a tricky time of things at the moment as the decrease in the value of pound eats into margins. There is a wave of retailers and manufacturers hinting (or in fact saying) at price hikes are around the corner to compensate bottom lines.
Nevertheless Debenhams' chairman Sir Ian Cheshire said that the business is strong enough to withstand such headwinds. He said: "Our diversified business model together with good cash generation and reducing debt means that Debenhams is in good shape to withstand a market background that remains uncertain."
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Read more: Debenhams downgraded by Investec due to foreign exchange worries
Debenhams will hope that the exceptional item hit of £12.4m will not be occur next year. The costs relate to its problematic Irish operations, where the business has been subject to "examinership" insolvency proceedings as well streamlining its head office and writing off the cost of development of its international website.
What Debenhams said
Cheshire said:
We have delivered profits in line with market expectations, reflecting a strong performance over peak followed by a tougher second half trading environment. Our strategy to rebalance the business towards non-clothing has supported our performance, with strong progress in beauty, gifting and food.
Our executive team, supported by all our colleagues, are actively managing the business to increase its resilience and flexibility, which will stand us in good stead to deliver long term sustainable growth.
Following the arrival this month of our new chief executive, Sergio Bucher, we look forward to updating the market in Spring 2017 on our longer term plans for the next phase of Debenhams' development.
What analysts said:
Analysts at Haitong Research had expected pre-exceptional profit before tax to be £113m, so Debenhams' ability to beat that by £1m brought a modicum of praise from Tony Shiret: "On a fundamental basis the statement looks OK, but subject to them not saying anything on strategy until new chief exec Sergio Bucher is ready to do so in Spring 2017."
Robin Byde of Cantor Fitzgerald expected profit before tax of £110m but similarly reserving judgement until the new year:
We still have concerns with the company’s capital intensive ‘bricks and mortar’ infrastructure, and issues with the company defined benefit pension schemes.
The appointment of Sergio Bucher from Amazon as chief executive should lead to a reassessment in strategy.