The share price of Debenhams Plc (LON:DEB) (DEB.L) has dropped 5% today after it released interim results and details of a strategic review to the stock market. The company’s gross transaction value was 2.9% higher in H1, with UK LFL up 0.5%. This is reflective of further progress in growing non-clothing categories and strong online momentum.
However, gross margin was 30bps lower, with a further 50bps markdown improvement on last year offset by sales mix dilution. Full price sales mix grew 2%. Group EBITDA was down 2.5%, with UK EBITDA 6% lower and international EBITDA up 13.1%. International performance remains mixed, while UK online performance was driven by mobile orders up 64%.
Debenhams also announced a strategy review with its H1 results. Debenhams Redesigned intends to deliver growth and efficiency by making Debenhams a destination for ‘Social Shopping’, with new products, a more innovative culture and a greater focus on digital. It also intends to simplify its store estate through the review of 10 UK stores for closure over the next 5 years, as well as switch 2,000 more staff to customer-facing roles and replenish stock faster.
Additional capex will be required to upgrade the Debenhams mobile systems and supply chain, as well as invest in in evolving store estate. Annual capex of £150 million is now expected between 2018 and 2020 versus current annual capex of £130 million.
In the last year, Debenhams has recorded a share price fall of 33%. This is a worse performance than other retailers such as Tesco PLC (LON:TSCO) (TSCO.L), J Sainsbury plc (LON:SBRY) (SBRY.L), WM Morrison Supermarkets PLC (LON:MRW) (MRW.L) and Next plc (LON:NXT) (NXT.L). Tesco shares are 4% down, Next is 20% lower, Sainsbury’s has fallen 9% and Morrisons is up 21%.
In my view, Debenhams may now have the right strategy, but it faces a difficult operating environment. While this is true for other retailers, I feel they may be ahead of Debenhams in terms of responding to difficult trading conditions. Therefore, I think there may be better options available elsewhere within the retail sector.