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Debenhams: analyst reaction

Following the announcement that Debenhams’ chief executive Michael Sharp is to step down in 2016 and the firm’s pre-tax profit increased 7.3% for the year to August 29, Drapers rounds up the reaction from City analysts.

Richard Chamberlain, equity analyst at RBC Europe said: “We maintain our outperform rating as we think Debenhams is an inexpensive share with renewed operational momentum. Debenhams has several structural advantages over other department stores such as high exposure to the growing health and beauty category, it is a market leader in occasionwear, it is close to 100% brand recognition in the UK and it has the ability to differentiate, for instance with its Designers at Debenhams ranges.”

Assad Malic, director of general retail equity research at Citi said: “Debenhams has reported full year results slightly ahead of forecast and is indicating an encouraging start to the year underpinned by strong new product launches. Our consensus is the forecast for profit before tax to August 2016 is unlikely to change significantly. We forecast full year 2016 profit before tax of £117m.”

James Collins, retail analyst at Stifel said: “Management is making good progress on key priorities around stock control, driving full price sales growth and managing the cost of online growth while maintaining good top-line momentum. Michael Sharp’s intention to resign is from a position of strength, with the business delivering on its priorities. We continue to believe there is scope for a re-rating over time, reflecting the tighter management, de-leveraging and de-risking of the business.”

Kate Calvert, analyst at Investec said: “Strategic changes at Debenhams remain in their early days, but appear on track at this stage with a focus on capturing operational efficiencies and moving towards a less promotional trading stance. Cost headwinds posed by the National Living Wage could make profit progression trickier with efficiencies generated at a gross and operating cost level likely to at least in part be impacted by this headwind. In addition, we continue to believe the offer requires ongoing reinvestment.”

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