Debenhams Ord 0.01p (DEB)

Company overview

The business was formed in 1778 by Messrs Flint and Clark who began trading at 44 Wigmore Street in London as a drapers' store. In 1813 William Debenham was made a partner so the name was changed to Clark and Debenham. The business was incorporated as Debenhams Limited in 1905. The modern Debenhams group grew from the acquisition of department stores in towns and cities throughout the UK, under the leadership of its Chairman, Ernest Debenham. Today, the group operates over 150 stores across the UK and Ireland. In addition, the group has in more recent years been expanding overseas, with over 60 stores operated in some 25 countries, including the likes of Denmark, Qatar, Turkey and Vietnam.

HL Comment (20 September 2011)

The group's fourth quarter trading update (20Sept2011) saw the company ending the year on a positive note. While like-for-like sales excluding VAT over the course of the full year declined by 0.3pc, sales for the final quarter grew by 0.4pc, with sales in the first half proving tougher than those in the second. A diversified strategy to generate growth continued to be pursued. Online, in store ordering and mobile sales increased by 71.9pc (excluding VAT) over the full year, whilst its Danish business, Magasin du Nord, continued to perform well according to management, having recorded same store sales growth of 4.8pc since its acquisition (November 2009). Furthermore, six store refits commenced in the second half of the year, with completion expected in the early weeks of the new financial year. The new Chief Executive concluded "We believe a decision to maximise cash profit by investing in top line sales growth has proven successful and that this will result in headline profit before tax for the year coming in ahead of consensus forecasts". Full year results are scheduled for 20October2011.

Negative Points:

• Against a challenging economic backdrop, like-for-like or same store sales excluding VAT declined by 0.3pc over the course of the full year.
• A change of management injects a degree of uncertainty. Former CEO, Rob Templeman, has now retired, with the former deputy CEO, Michael Sharp, now succeeding him.
• Competition from the likes of John Lewis and Next remains intense, whilst management comments continued to highlight caution in relation to the strength of consumer confidence and the timing of an economic recovery.
• The group's growth strategy potentially clashes with rivals – expanding online sales, refitting and opening new stores, developing own label products and making a push overseas.

Positive Points:

• The group's Q4 trading update has seen management upgrading its guidance for full year profitability.
• Management 'self-help' initiatives continue. Investment in the multi-channel model is ongoing, moves into Denmark, Iran and Vietnam have increased geographical diversification, whilst an increase in own branded merchandise has helped increase the group’s profit margin over recent years. Furthermore, the group continues to cater for consumer demand for designer products.
• A major equity fundraising exercise and strong free cash flow have both helped to reduce debt – year-end net debt is expected to be in the region of £385m, a reduction of some £130m since the start of the year.
• Store refits remain ongoing, with six store refits commenced in the second half of the year.
• A previously announced resumption of the dividend payment underlines both the group’s greatly improved financial position and its confidence in the future.

Consensus

On balance, market consensus indicates a buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: British pound.