High street turmoil: Debenhams cancels dividend as it confirms £500m loss
Debenhams scrapped its dividend this morning as it confirmed a loss of almost £500m amid plans to close up to 50 stores, after news of the troubled retailer’s desperate outlook broke late last night.
The department store’s biggest loss in its 240-year history came as chief executive Sergio Bucher insisted the company remains a “profitable business”, with new CFO Rachel Osborne writing down £524.7m in exceptional costs to mark a clean break from years of turmoil.
Its share price slipped just 1.41 per cent in early morning trading.
The figures
Read more: Debenhams to reveal huge losses and job cuts
Its £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.
Cash flow slipped from £216.3m to £159.1m, though underlying profits before interest, tax, depreciation and amortisation stood at £33.2m, almost two-thirds lower than 2017.
Dividends were suspended as Debenhams seeks to boost cash flow and slash its net debt, which rocketed from £275.9m in 2017 to £321.3m for its latest financial year.
Why it’s interesting
Boss Sergio Bucher insisted that the one-off exceptional costs meant the high street behemoth remains profitable, telling the BBC’s Today programme that "the loss is basically an accounting adjustment to allow us to deal with legacy issues”.
“We're cleaning up our balance sheet to be fit for the future."
Of the costs it is writing off, £512.4m relate to store write-offs, legacy IT costs and Debenhams’ £1.9bn deal to go private in 2003.
However, today’s results demonstrate that Debenhams is the latest victim of high street troubles that sent fellow department store House of Fraser into administration briefly over summer, and which saw John Lewis’s profits tumble 99 per cent earlier this autumn.
Just yesterday Gourmet Burger Kitchen announced insolvency, entering a company voluntary agreement that eyes the closure of 17 restaurants.
As a result, Debenhams confirmed that up to 50 “underperforming” stores could close between the next three and five years, while it will narrow its focus to around 120 stores while cutting costs of £130m over three years.
While it embarks on a turnaround strategy, analysts criticised the chain’s new-look store in Watford as a “value trap” when it launched last month.
Read more: Debenhams could close dozens of stores in cost-cutting drive
What Debenhams said
Bucher said:
It has been a tough year for retail in 2018 and our performance reflects that. We are taking decisive steps to strengthen Debenhams in a market that remains volatile and challenging.
Working with our new CFO Rachel Osborne, and the board, I am determined to maintain rigorous cost and capital discipline and to prioritise investment to achieve profitable growth.
At the same time, we are taking tough decisions on stores where financial performance is likely to deteriorate over time.
Debenhams remains a strong and trusted brand with 19m customers shopping with us over the past year. Our transformation strategy is gaining traction, with positive results from new product and new formats, general acclaim for our store of the future in Watford and digital growth that is outpacing the market.
With a strengthened balance sheet, we will focus investment behind our strategic priorities and ensure that Debenhams has a sustainable and profitable future.