Debenhams posts 24.8 percent profit slump

British multinational department store chain Debenhams plc posted a 24.8% pre-tax profit decline to £87.2 million in the year to August 30, 2014, even though like-for-like sales increased by 1%.

Deep January sales promotions significantly reduced margins. The company offered the January discounts after disappointing sales in the run up to Christmas in 2013.

Gross transaction value rose 1.7% to £2.82 billion, while revenue remained flat at £1.9 billion.

Sales were strong thanks to online growth and a good performance in its Oxford Street flagship (which had been revamped). The opening of two new stores in 2013 and four new stores in 2014 also helped push up sales.

Online sales grew 17.6% to £430.7 million, representing 15.3% of all sales for the year, compared to 13.2% in 2013. Debenhams.com received 276 million online visitors in the year, an increase of 15%. Visits from mobile devices rose 58%.

International sales grew by 5.1% to £548.6 million while EBITDA increased by 9.5% to £42.5 million.

(Source: Debenhams plc)

Debenhams’ CEO, Michael Sharp, said:

“After the challenges we faced in the first half, everyone in the business has been focused on addressing the issues we identified and on delivering on the priorities we set out in April to deliver long-term sustainable growth. Our performance in the second half reflects this with operating profit up on the previous year.”

“We achieved higher full price sales and fewer days on promotion as a result of greater clarity on our promotional calendar resulting in an improved gross margin. We have also made good progress on our work to drive better returns from our space. Developing a more convenient and competitive online fulfilment offer has been a key priority and we enter this year’s peak trading period with a much improved range of delivery options. We expect further benefits to accrue from these priorities going forward.”

Debenhams says its customers report a more optimistic outlook on the economy, but still comment that their disposable income continues to be tight. Consequently, the company remains cautious about the outlook.

So far this year, Debenhams shares have declined in value by over 20%. Mr. Sharp has been reducing costs and introducing concessions in all Debenhams’ stores, including Mothercare, Costa, and Sports Direct.

Sports Direct owner, Mike Ashley, has an 11% stake in Debenhams.