Debenhams plc’s Results Hint At Recovery

There’s more than meets the eye in the headlines on recent results from Debenhams plc (LON:DEB).

Sam Robson

I've been a Fool for over a decade, and am proud to currently call myself the Editor in Chief of TMF UK. I follow Foolish investing principles, and buy shares in quality companies throughout both bull and bear markets!

Published 15 April, 2014 9:51 am BST

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

“Never judge a book by its cover” — and the same applies to company results, too. Debenhams (LSE: DEB) revealed that pre-tax profits were down 25% to £85.2m in the 26 weeks to 1 March 2014, and most headlines reflected this. But savvy investors will know better than to take this at face value.

Digging deeper into the retail group’s half-year results, it’s important to note that the aforementioned figure was in line with guidance — on New Year’s Eve, management brought Debenhams’ quarterly trading statement forward from 17 January to warn that it did not “experience the anticipated final surge in sales in the last week of the [Christmas sales] period”, sending the shares down by 12% on the day.

So what actual fresh news did today’s update bring? Well, shareholders will point to the company’s decision to maintain the interim dividend at 1p per share as a positive sign, while group like-for-like sales increased by 1.5% in comparison to the same period last year.

Elsewhere, international growth appears to be a strategic axis for Debenhams’ potential recovery, with four new international franchise stores opening (with one closing), while international sales helped push the company’s gross transaction value (GTV) to 2.1% (broken down: UK up 1%; International up 6.8%). Management also highlighted the “strong performance” from the Danish chain of department stores, Magasin du Nord, that it owns.

Closer to home, it continues to find success in online space: group online GTV increased by 24.1% and now accounts for 15.4% of total GTV, while the cut-off for next-day delivery is to increased from 2pm to 10pm in the UK. Chief executive Michael Sharp commented:

“We are focused on building a more competitive multi-channel offer for our customers and improving the operational effectiveness of the overall business.

“The Debenhams brand remains strong with sales continuing to grow and a resilient market share performance. Whilst we remain cautious about the strength of the UK consumer recovery, I am confident the changes we are putting in place will provide a better customer experience and, over time, stronger results for our shareholders.”

It’s worth noting that despite today’s 4% lift in early trade, shares in Debenhams are still down by more than 25% from six months ago, and at current prices fetch an attractive 4.4% yield.