Debenhams’ share price rose 15 per cent this morning despite the high street department store posting a £500m loss, its worst in 240 years of trading.
A £491.5m loss for its 2018 financial year was down from a £59m profit it recorded in 2017, while revenue fell 1.8 per cent to £2.9bn and like-for-like sales declined 2.3 per cent.
However, investors appeared to take heart in chief executive Sergio Bucher saying the loss was a one-off, as the struggling retailer sought to draw a line under previous failures.
Here’s three takes on the news from industry experts:
Clicks beat bricks
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Debenhams’ decision to close 50 stores reflects the new harsh economic reality on the UK high street. Clicks are beating bricks, and retailers are having to cut their cloth accordingly.
“Consumers are increasingly spending their money on experiences rather than stuff, and Debenhams is using some of its space to capitalise on that trend, with gyms and food outlets being opened in department stores. The retailer is also investing in improved customer service, which is vitally important, as this is something digital-only players can’t replicate.
“Debenhams is also focused on its online offering, which is bearing fruit and growing strongly, albeit not enough to outweigh declines on the high street. Debenhams should be viewed as a recovery play for adventurous investors, with a tolerance for loss and the patience to see things get worse before they get better.”
Mike Ashley may hold the key
John Moore, senior investment manager at Brewin Dolphin, said: “With the share price down 75 per cent in the year to date, there seems little appetite from investors for additional equity which would provide the business with breathing space for the management to see if their recent action can yield better sales results, and after House of Fraser’s woes there will be some degree of concern from debt holders too. All eyes will be on what prominent shareholder Mike Ashley plans to do next.”
Investors should welcome a stronger balance sheet
A note from Liberum read: “The significant action we have been asking for has clearly been announced and we are encouraged by the more aggressive restructuring strategy to reposition the business.
“The fact that the div has been cut should have been expected so this should be seen positively as a balance sheet strengthening point as oppose to disappointment in the lack of income. There may invariable be closing of short positions and the rotation of income holders out of the stock so aside from these short term trading impacts today’s announcement should lead to a more stable business.
“That said, negotiations with landlords are at an early stage, costs associated with redundancies have not been quantified and to execute the scale of the change will not be straightforward.
“Whilst there is a lot of detail to go through and the impact on forecasts to consider, we are encouraged by today’s announcement and future cash flow suggest a ‘hold’ is now warranted after a share price fall of 75 per cent in the year to date.”