Debenhams PLC (LON:DEB) reports full year results on Thursday, with investors keen to see if the embattled department store group will scrap the dividend and announce a wave of store closures in a bid to ignite a turnaround in its fortunes.
The retailer, which has issued four profit warnings and shed two-thirds of its market value this year amid a high street downturn, has already flagged that profits would come in at between £35mln and £40mln, well below market expectations and the £50.3mln it reported last year.
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According to Reuters data, Debenhams’ annual sales are expected to come in at around £2.75bn compared to the £2.97bn it reported a year ago.
The department store chain is one of many high street retailers that have struggled as more consumers switch to online shopping and hunt for discounts.
The company has so far avoided an insolvency process, known as a company voluntary arrangement, that a number of retailers including New Look, Carpetright PLC (LON:CPR) , House of Fraser and Mothercare plc (LON:MTC) have agreed with creditors this year to allow for store closures and reduced rents on remaining sites.
But Debenhams has been under pressure to turn around the business and avoid the same fate as main rival House of Fraser, which was rescued by Sports Direct International PLC (LON:SPD) in August.
In an effort to cut costs, it is now reportedly considering axing dividends and closing up to a third of its 166 stores, on top of the 10 closures already announced.
Debenhams is trying to revamp stores with a new “social shopping” experience in an attempt to improve footfall but the company is running up capital expenditure to carry out the plan.
“It’s still early days, and there’s still lots of investment in the store estate to come. But wider market conditions means the pressure’s on to show signs of progress,” said Nicholas Hyett, equity analyst at Hargreaves Lansdown.
However, freeing up the funds to revamp its stale stores could be easier said than done.
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Much of the retailer’s free cash flow has been swallowed by dividend payments, meaning it hasn’t been able to invest in its web functionality or delivery options unlike many of its rivals - especially private companies like Selfridges or online-only retailers.
Websites such as ASOS PLC (LON:ASC) and Zalando offer far more products - all on one website - than the likes of Debenhams can stock in-store. Being able to shop ‘til you drop whilst sat on your couch has played a big part in denting department stores’ sales and reducing footfall.
“Credit where credit’s due, the (Debenhams) online business is looking pretty robust and is growing rapidly - now accounting for £1 in every £5 of revenue. We’d hope to see more growth here,” said Hyett.
It’s not just the stores themselves that have been affected, but the fashion retailers which rent out space in their shops - called concessions - have also been hit.
Earlier this month Superdry PLC (LON:SDRY) bemoaned the poor performance of its concessions, noting the “well-publicised challenges” facing some its trading partners.
Investors will also be on the lookout for any information on a possible takeover bid for the group by retail mogul Mike Ashley who already owns some 30% of Debenhams and is rumoured to be considering combining Debenhams with House of Fraser.