Britain's second-largest department store group Debenhams PLC (LON:DEB) is considering the closure of up to 10 of its 176 stores and plans to enhance its digital offering following a strategic review by its new boss, unveiled as it reported a fall in first-half profits.
The FTSE 250-listed firm is also consulting on the closure of one of its three central warehouses, run by DHL, which will shut in two years' time, with ten smaller in-house warehouses also to close.
Debenhams chief executive, Sergio Bucher, who took over in October, said the stores would potentially be closed over the next five years.
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The strategic review results came as the group - which is ranked behind the UK’s number one department store chain, employee-owned John Lewis by revenue - reported pre-tax profit of £87.8mln for the 26 weeks to March 4, down 6.4% from the £93.8mln reported a year earlier.
The firm said its group gross transaction value rose by 2.9% to £1.676.5bn, with UK like-for-like transactions up 0.5%, reflecting further progress in growing non-clothing categories and strong online momentum – mobile orders were up 64%.
In early afternoon trading, Debenhams shares continued to top the FTSE 250 fallers list, down over 5%, or 2.85p to 52.45p.
In a note to clients on Debenhams, Liberum Capital analysts said: “The company has strengths, notable in Beauty, but is challenged by long term margin erosion, declining UK footfall and a proposition that lacks appeal vs brands, fast fashion and value peers.”
They maintained a ‘hold’ rating on the stock with a 58p target price.
Customers shopping habits changing
Debenhams added that its group gross margin rate was 30 basis points (bps), with a further 50 bps markdown improvement on last year offset by sales mix dilution, while its full price sales mix grew 2%.
In the group’s statement, Bucher said: "Our customers are changing the way they shop and we are changing too. Shopping with Debenhams should be effortless, reliable and fun whichever channel our customers use. “
He added: “We will be a destination for ‘Social Shopping’ with mobile the unifying platform for interacting with our customers.”
Plans to upgrade its mobile systems
Debenhams said additional investment was required to upgrade its mobile systems, supply chain and its store estate.
The group said annual capital expenditure would be £150mln between full year 2018 and full year 2020 versus current annual capex of £130mln.
It added that total exceptional costs over 2017-2020 would be £50mln of which approximately half would be cash.
Debenhams maintained its interim dividend at 1.025p supported by continued cash generation, with net debt reduced to £216.9mln at the period end, down from £224.2mln a year earlier.
READ: Sports Direct ups its Debenhams interest
Mike Ashley’s Sports Direct Group PLC (LON:SPD) recently raised its indirect holding in Debenhams , taking its interest held via contracts for differences and a put option to over 13%.
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