Analysts have applauded Debenhams’ “modest” growth against the backdrop of economic troubles – although some have reserved final judgement until the full results are revealed.
Independent analyst Nick Bubb said “we must doff our hats to the much maligned management of Debenhams” for results so far, with growth on strong sales revealed back in June. Gross margins appear not to have “taken a pounding, despite Debs’ apparently constant discounting”, he added.
But he aired a note of caution over the guidance that full year pre-tax profits would be “in line” with market expectations despite strong sales growth. This “implies there is something not quite right but this may be an operating cost/revenue investment issue,” Bubb said.
James McGregor, director of the retail consultancy Retail Remedy, agreed that management should be congratulated for its short term sales strategy, which had driven growth through a tough period, although warned it was not sustainable.
“In the current climate, such modest growth looks almost masterful,” he said. “To have piled on like-for-like sales, especially in the face of this summer’s retail slump, is a solid achievement, even if it has come at the expense of margin.”
In the long term, McGregor said Debenhams should focus on retaining customers through “brand loyalty rather than customer attraction to promotional pricing”.
He added: “Debenhams’ much-needed investment programme, in both its bricks and mortar stores and its online platform, should make it a stronger player in a market that is being continually squeezed both by poor consumer confidence and widespread discounting.”
Many – including Sanjay Vidyarthi at Espirito Santo and John Stevenson at Peel Hunt – reiterated their buy recommendations.
Vidyarthi noted that management now had strategies in place to “drive meaningful, and we think sustainable, market share gains”, adding that he did not expect “material changes to consensus” on the department store until next year at the earliest. Investec increased its buy recommendation, saying it expected shares to rise today.