Debenhams Trading Update and Overall Performance

Debenhams Trading Update and Overall Performance

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With the announcement by Debenhams about the retail store’s trading update, a clear picture for the last 15 weeks ending June 11 is now very clear. Online sales increased by 7 percent, and LFL sales increased by 0.2 percent. Within the 15-week time frame, the gross transaction’s value increased by 0.5 percent, which took the YOY cumulative performance to 1.3 percent. With the introduction of the National Living Wage, Debenhams expects some impact on its growth, including unpredictable trading effects from the current environment. However, the retailer is hopeful its full-year growth and overall results will remain within its expectations.

Unchanging strategy

According to Michael Sharp, the Chief executive, their strategy is expected to remain unchanged. In addition, progress is expected to be extended to non-clothing areas. In contrast, service improvement is anticipated for multichannel buyers while offering a vast array of services and products in a space that has been somewhat under-optimised. Debenhams has also responded to the uncertain trading environment within the current period, mostly in clothing, by focusing on generating cash margins and stock.

Fallen shares after dropped sales report

The 0.2 percent reduction in like-for-like sales has not been without consequences. While even H&M registered a 17% decrease in sales almost within the same period, Debenhams continued to rue the uncertain UK trading environment that started at the beginning of 2016. While clothing sales remained weak, non-clothing sales have affected its profits, which have stopped dipping even lower, especially beauty and health sales. The results, according to analysts, seem to indicate how harsh conditions remain on the UK high street. Investors are expected to demand that Debenhams keeps a tight leash on cost, even as pre-tax profits are expected to stay around £119m.

Debenhams has promised to remain focused on its already clear strategic priorities and respond to the volatile trading conditions while ensuring costs remain tight, margins are managed, and cash generation is driven better. After tightening its initial buy, Debenhams is also working towards managing seasonal stocks, more so womenswear as well as selected promotions. All these would help the company stick to its plan of ending the year in a better position.

Online growth

As Michael Sharp departs and Sergio Bucher takes the helm, the group is confident of better and strong execution of its strategy as it seeks to fire up its sales and growth. The 7 percent Debenhams online sales growth compares with the cumulative yearly increase of 9.1 percent. The company continues to register promising trends in mobile, which currently stands at 50 percent of all orders online within the UK and a solid 19 percent increase in Click and Collect.

Sergio is expected to take the mantle in October 2016. The new CEO has been serving as Amazon Fashion Europe’s vice president, making it one of the top European fashion retailers since 2013. Sergio has also worked as Puma’s worldwide e-commerce, retail and general manager and held retail management roles in Inditex and Nike.

Sergio Bucher was announced by the chairman, Sir Ian Cheshire, who indicated how rigorous the recruitment process was. Of many exceptional candidates, Bucher’s e-commerce expertise, experience, global understanding, and evident leadership qualities made him stand out. As Debenhams seeks to be the top international multichannel retailer, Sergio is expected to play a critical role. Considering the retailer had a 7 percent increase in online sales, it’s likely that with the spectre having passed to Sergio, who has a vast experience in this area, the group will see further growth in the coming months.

Early in the year, a new international director, David Smith, had been appointed; he was the Body Shop International MD in the Asia Pacific and was slated to join Debenhams by May.

Boosting furniture growth

One of the expected strategies after flat profits and lower sales is boosting its furniture sector as other areas registered weak sales, such as clothing and the decision by shoppers to spend most on holidays. The department store chain has different stores selling furniture, with some having tiny furniture displays; the store chain has been trying out two unique collections of furniture in Gateshead and Manchester. Another six display concepts are expected to have been introduced by the 2016 Winter/Autumn peek season.

In April, Debenhams reported a 5.5 per cent pre-tax profit rise to £93.8 million for the half-year ending February 27thFebruar  27ales and transaction values were relatively up. A the time, Michael Sharp, the outgoing chief executive, had indicated the group had a lot to carry out but remained on track in working hard to deliver its expected full-year results. At the time, the chief executive had reported a more robust performance in operations, giving the retail chain a unique Christmas record, including more profit growth in the first half in contrast with the 2014 performance at the same time. T is alluded to by the encouraging response by customers to Debenham’s multichannel strategy, including the compelling mix of brands and products and their monetary value.

Between August 2013 and August 2015, Debenhams turnover increased from £2,282 million in 2013, £2,313 million in 2014, and £2,323m in 2015. Around the same time, operating profit fluctuated, from £155m in 2013 to £124m in 2014 and £134m in 2015. Net profit after taxes around the same time stood at £116m in 2013, £87m in 2014, and £94m in 2015.

On the International division, the retail chain has had mixed performance but with constant growth in currency sales from year to year and a favourable foreign exchange impact. G global online growth has continued to show growth solidly, although from a relatively small base, with the support mostly being Debenhams new online platform.

With the entry of Sergio Bucher and his online e-commerce experience, Debenhams is expected to leverage online sales and growth while boosting its various areas of product offering, such as furniture and low performers like clothes and enhance better performers even further, such as health and beauty.