A strong rise in orders placed from mobile devices gave hope that department store Debenhams PLC (LON:DEB) might yet thrive in the digital age.
Sales growth in the financial year just ended was in line with the inflation rate, but Digital sales grew 12.7% from the year before, driven by mobile orders up 57% in the UK.
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The gross transaction value across the group in the 52 weeks to 2 September rose 2.0% to £2.95bn from £2.90bn the year before, with like-for-like sales flat in the UK.
Beauty sales grew by 5% year-on-year and food sales grew by 8% but clothing sales declined by 0.5%.
Underlying profit before tax, which strips out one-off items, fell by one-sixth to £95.2mln from £114.1mln, in line with market expectations. Reported profit before tax slumped 44.2% to £59.0mln from £105.7mln.
The group’s gross margin rate declined by three-tenths of a percentage point, in line with guidance.
The full-year dividend was held at 3.425p.
Reaction to trading update mixed
"We are making good progress with implementing our new strategy, Debenhams Redesigned, and are encouraged by the results from our initial trials, as well as the number of exciting new partners who want to work with us,” said Sergio Bucher, chief executive officer of Debenhams.
Among those “exciting new partners” are blow LTD, a digital beauty services provider, and Sweat!, a gymnasia operator that plans to open gyms in three Debenhams stores.
"The environment remains uncertain and we face tough comparatives over the key Christmas weeks; however, we are well prepared for peak trading and the early signs from our activity to date confirm that we are moving in the right direction towards a successful and profitable future for Debenhams," he added.
The reaction to the update was mixed, with the shares trading between 44.75p and 47.25p before returning to their overnight level of 46p.
Bit more pain for investors for time being
Neil Wilson at ETX Capital, said ex-Amazon luminary Bucher is upbeat about ‘Debenhams Redesigned’ and “this may offer some succour to investors as they digest a pretty bad fall in profits”.
“Investment in the new strategy is vital but means a bit more pain for investors for the time being. The £36.2m one-off charge left reported pre-tax profits -44% at £59m. Underlying profits were still down a lot, -16.6% to £95.2m, but in line with market expectations. UK EBITDA was a weak spot, falling more than 10% due to a ‘tough trading background’ in the second half,” Wilson added.
Further evidence of tough times for bricks & mortar retailers came this morning in the form of bleak employment news from the British Retail Consortium (BRC).
The BRC reported its members cut their workforce by 3% in the third quarter from a year earlier; total hours worked fell by 4.2% year-on-year.
The declines in the size of the workforce and the number of hours worked were the largest on record; the BRC began keeping stats on employment levels in 2008.
"The pace of job reductions in the retail industry is gathering steam," according to Helen Dickinson, the chief executive of the BRC.
"Behind this shrinking of the workforce is both a technological revolution in retail, which is reducing demand for labour, and government policy, which is driving up the cost of employment," she added.