Debenhams share price rises as profit drop lines up with expectations: Here's how the City reacted

Caitlin Morrison
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Debenhams profits took a hit last year (Source: Getty)

Debenhams reported a drop in profits for the year to 2 September this morning, blaming an exceptional charge relating to its turnaround plans for a dramatic 42 per cent decline.

The retailer's underlying profit before tax was down 16.6 per cent, from £114.1m to £95.2m, which was in line with expectations, and investors seemed happy enough with the numbers - shares were up more than two per cent in early trading, although the stock has dropped back since then.

This is what City analysts had to say:

What's on the cards

Hargreaves Lansdown equity analyst George Salmon said: "The obvious solution to the problem of declining high street footfall is to steer the ship towards 21st century sales methods, and there are worse candidates than Sergio Bucher to do that. The former Amazon exec is ploughing investment into the app and website, but many of the stores are tied into long leases so Debenhams has little more flexibility than a supertanker just now.

"In the short-term at least, Mr Bucher has little choice but to play the cards he’s been dealt, and filling up excess sales space with gyms, restaurants and other social spaces will have to do. The one ace up his sleeve is the group’s excellent cash generation. This not only helps underpin the dividend in the near term, it should provide a means to get these various new initiatives up and running."

Cold comfort

ETX Capital analyst Neil Wilson said: "Debenhams would appear to embody many of the struggles facing the high street. Shoppers are going online; the weak pound is pushing up input costs, hitting margins; and labour costs are rising. The answer for Debenhams at least is to get its mobile shopping experience better than anyone else. With sales growth of 57 per cent in this segment it looks like it’s on the right track.

"CEO Sergio Bucher (ex-Amazon) is upbeat about the transformation progress – Debenhams Redesigned - and this may offer some succour to investors as they digest a pretty bad fall in profits."

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