Debenhams profits plunge but stays upbeat on Redesigned strategy
today Apr 19, 2018
Times are tough for Debenhams but the retailer stayed upbeat on Thursday despite unveiling a poor set of interim results. Yet the company is not taking its problems lying down and remains committed to its Debenhams Redesigned strategy with plans to dive deeper and faster into the transformation program.
From next season that means it will refresh its fashion offer more often during each season and will further upgrade and develop its Designers@Debenhams ranges.
But first, let's look at the numbers for the 26 weeks to March 3. Group gross transaction value (GTV) fell 1.6% to £1.65 billion while revenue fell 2.4% to £1.319 billion. Profit was hurt by the weaker performance as well as by as the company investing heavily in its new strategy. On an Ebitda basis, it plunged 30.6% to £103.5 million and the figures just get worse from there. Underlying pre-tax profit plummeted nearly 52% to £42.2 million pounds and reported pre-tax profit was down as much as 84.6%. It had been £87.8 million a year ago, but this time came in at only £13.5 million.
Comparable sales declined 2.2% “against a challenging UK market background” with constant currency comps down 2.8%. The final trading week was disrupted by “extreme weather conditions” that temporarily closed almost 100 stores during the company’s New Season Spectacular event, denting comp sales by around 1% for the half.
And full-year pre-tax profit is expected to be at the lower end of the current range of broker forecasts of £50 million-£61 million.
DIGITAL GOOD NEWS
Was there any good news? A little. The company saw market-beating digital sales growth of 9.7% and digital Ebitda up 10.3%, “driven by further strong growth in mobile and improved conversion rates.” Digital sales accounted for 21% of its UK business, with digital beauty up 16%.
Its mobile site is its largest and fastest-growing 'store' and now attracts more than 150 million visits, with annualised revenues approaching £250 million. Orders via smartphones grew 35% and made up 33% of digital sales in H1.
Its partnership with Mobify to boost its web tech has helped to drive a 16% improvement in smartphone conversion rates and has also generated “an even more positive response” on its Irish and International websites.
And it’s using digital to boost store sales too. It plans to “take a more aggressive approach in digital marketing, particularly where there is an opportunity to drive store traffic.” Already “one-third of digital transactions include a store as part of the journey.”
FASHION AND BEAUTY
Debenhams said its focus on reducing overlap between brands helped it maintain market share in womenswear in the first half, which it aims “to build on with progressive product improvements this season and next.”
It said that in particular, it has seen a strong performance this season in certain brands where it has “delivered a clear product point of view and a tighter brand focus.” This includes Star by Julien Macdonald and Mantaray, “which is a core brand but with a clearly differentiated handwriting.”
One of its key priorities is to further improve its product offer and it will take a “significant step forward next season” with more frequent newness in-season, “which will encourage customers to visit more frequently - and importantly, [offer] more opportunity to repeat bestsellers.”
As an example of fast turnaround of new product, this season it is testing a curated collection of European brands, Brand MRKT, available online and in 45 stores, “which has had a very positive early response.”
And the refresh of Designers@Debenhams is under way. In line with its plans “to adopt a more robust approach to brand management,” it will be phasing out its long-standing collaborations with John Rocha and Jeff Banks. Its new season Studio by Preen ranges will offer upgraded premium fabrics while “maintaining affordable price points” and in May it will launch a capsule Designer range online and in flagship stores with “award-winning London Fashion Week designer, Richard Quinn.”
And as the 16% digital beauty growth showed, beauty is a key area for the company. It said that the destination category delivered overall positive growth in the first half.
The successful relaunch of its Beauty Club loyalty programme last year “delivered an increased base of engaged customers, at 1.3 million” and with the aim of driving beauty sales to £1 billion, it has identified categories where it can extend its offer, which includes expanding the growing male grooming sector.
It's also working on the concept for its “Beauty Hall of the future, which will be an innovative, interactive and digitally-integrated format, including beauty services and an events space, launching in two stores this autumn.”
INTERNATIONAL STRENGTH AND WEAKNESS
Internationally it also had some good news. While Ebitda profit declined almost 40% in the UK, International Ebitda was up 2.6%, with Magasin du Nord in Denmark “delivering further progress.”
The International business accounted for around 20% of group GTV and over 30% of Ebitda in H1. Magasin du Nord grew GTV by 4% and Ebitda by 6% to £20.1 million. This performance was supported by a further upgrading of the beauty hall in the Copenhagen flagship as well as very strong digital growth.
But its Irish stores have suffered some of the same market pressures as the UK and its core Middle Eastern franchise markets continued “to suffer… but remain an important part of our future strategy.” It launched its first Southern Hemisphere store with its franchise partner in Australia last September but is continuing to exit “low-profit, low-growth activities and markets as [it] focuses on improving the profitability of International operations.”
Clearly, Magasin du Nord is its international bright spot and it plans for it to “become the destination for the best Scandinavian brands to the world online, leveraging its fulfilment and operating model.” As well as opening a new Danish store at Aalborg later this year, Magasin will launch click-and-collect across its chain. New digital market entries in both Sweden and Norway are planned over the next two years.
And what did CEO Sergio Bucher have to say about all of the above? He was cautious but undeniably determined: “The UK retail environment is undergoing profound change, and we are moving faster and working harder than ever to ensure Debenhams is well-placed to outperform in this new retail world. We expect no help from the external environment, so we are focused on delivering our Debenhams Redesigned strategy, aiming to mitigate difficult trading conditions through self-help initiatives.”
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