Debenhams announce record losses and closure of up to 50 stores

Employment & Skills | Latest News | Retail
Debenhams

Retail giant Debenhams have posted record annual losses and announced plans for the closure of up to 50 stores over the next three years – putting over 4000 jobs at risk.

In the the last financial year, the department chain reported losses of £491.5m – this is compared to profits last year of almost £60m.

Prior to today’s announcement, Debenhams had publicly stated that they were already planning on closing ten of their 166 UK branches. The stores at risk of being closed have yet to be named.

This big loss is largely down to a £512.4 million accounting write down, reflecting asset impairments. Like-for-like sales declined 2.7% at constant currency. Discounting meant that Debenhams’ gross margin fell by 140 basis points. Digital sales grew 12%, ahead of the market.

The retailer confirmed no final dividend will be paid.

Laith Khalaf, Senior Analyst, 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.

“This unfortunately spells job losses in the sector. There have been mumblings that the Chancellor may seek to redress the balance between high street and internet sales in the forthcoming Budget, though this seems like a rather large and rubbery item for Philip Hammond to get his teeth into, when he’s got plenty of other problems to chew over.

“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’ CEO Sergio Bucher was recruited from within the ranks of the Amazon executives, so we can expect some tech know-how to be leveraged here. The combination of a strong digital offering with a presence on the UK high street could be a winning combination for any retailer that gets it right, as the physical outlets provide a handy place for customers to collect and return items.

“The Debenhams share price has lost four fifths of its value in the last year, and no doubt some will be wondering if we are now near the bottom. Despite the dramatic drop, this is still a business in a state of transition, and while the upside could be considerable if Debenhams turns things around, there is still a risk of further losses, particularly given the fragile and dynamic consumer environment.

“Investors would do well to keep in mind the definition of a stock which has fallen 90%, is one which has fallen 80%, and then halved. 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.”

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