Embattled department store Debenhams (DEB) is in demand, rising 5% to 81.43p on some tweaks to its strategy and relief today's half-year figures contain no further nasty surprises. However the share price rebound comes despite further forecast downgrades, reflecting gloomy gross margin guidance from the structurally-challenged High Street giant.

You can drill down into the finer details of the British heritage brand's disappointing numbers but to re-cap, pre-tax profits are down 24.5% to £85.2 million over the 26 weeks to 1 March. That's in-line with a New Year's Eve profits warning, Debenhams' third earnings alert of 2013. This followed disappointing clothing sales and margin-crimping promotions to shift stock after a poor Christmas and prompted the resignation of finance director Simon Herrick in January.


The FTSE 250 firm's trading travails have in part been caused by a reliance on swingeing promotions to drive footfall. The retailer also faces structural pressures on its physical stores as tech-savvy consumers shift spending online. That said, the store group's web-based sales surged 24.1% higher to £241.2 million in the half, helping like-for-like sales edge 1.5% ahead for a sixth half of growth on the spin.

Today's 'new' news includes a strategy update from under-fire chief executive Michael Sharp. He says Debenhams will introduce clearer promotional periods with fewer markdown days, having seen the impact of its offers diluted by widespread industry price-cutting during the festive run-up. Sharp also concedes the trend towards convenience has left rivals with superior multi-channel businesses with an edge. In response, the £940 million cap will invest in more competitive online service options in time for Christmas and will introduce wholesale and licencing models to help expand the brand internationally.

Investec Securities' well-followed retail analyst Kate Calvert appears distinctly unimpressed by 'some tweaking in emphasis' to the growth strategy. 'We are unconvinced there is a quick fix and believe the investment needed will hold back profits, though we can see a small bounce in full year 2015 profits from lower markdown', writes the retail analyst, who believes 'management should cut back on promotions and invest in product quality as the brands have been devalued by all the discounting.'

Calvert reiterates her 'sell' rating and cuts her published price target from 67p to 64p. Year-to-August taxable profits are downgraded by 4% to £110.2 million, suggesting a sharp 23% year-on-year decline. The latest in a series of downgrades factors in worse-than-expected gross margin guidance of a fall of between 50 and 70 basis points, not to mention a higher-than-forecast net interest bill at the indebted group.

Issue Date: 15 Apr 2014