Debenhams defies the gloom on the high street

Failure to provide update on rights issue disappoints

By James Thompson
Wednesday 18 March 2009 01:00

Debenhams is to create 1,200 jobs over the next two years after delivering better-than-expected first-half results yesterday, but the department store chain's critics complained that it had provided no further clarity on its capital-raising plans.

The retailer said it would open a further eight UK stores before the end of 2011, including outlets in Kidderminster, Newcastle-upon-Tyne and Wakefield, adding 1,200 jobs over the period.

While Debenhams said the expansion was "not an acceleration" of its store opening programme, it reaffirms management's confidence in their strategy at a time when some retail rivals, such as Marks & Spencer, are cutting back on their plans for new outlets.

For the 26 weeks to 28 February, Debenhams' like-for-like sales, excluding VAT, fell by 3.6 per cent. This was ahead of market expectations and also included the impact of the poor weather conditions in early February when its Oxford Street store lost £200,000 on one day.

Debenhams attributed the sales growth to strong performances from its own bought ranges, particularly its Designers at Debenhams premium lines.

Michael Sharp, Debenhams' deputy chief executive, said it had gained market share across all categories, particularly in mens and childrenswear.

Debenhams said that gross transaction value for the 26 weeks was 0.3 per cent higher than the prior year. This, combined with higher gross margins and continuing tight stock management, will result in Debenhams delivering a first-half pre-tax profit ahead of the £92m it made in the first half of last year.

However, Debenhams, which has net debt of more than £900m, declined to comment on speculation about a capital raising, such as a rights issue or placing and open offer, to reduce its hefty borrowing. In January, Debenhams' management said it "wanted to take debt off the agenda". The lack of clarity on fundraising yesterday unnerved investors who sent its shares down by 5p, or 10.87 per cent, to 41.5p, nearly reversing the 15 per cent gain in its shares on Monday. Pressed on the fundraising issue, Mr Sharp would only say: "We are looking to drive sales and keep costs down – and that is the best way of managing the debt."

Matthew McEachran, an analyst at Singer Capital Markets, said: "Our conclusion is that a new equity issue is highly likely and that it would offer existing and new investors some compelling returns."

This month, Debenhams bought the stock of Principles, which has concessions in its department stores, from Deloitte, the administrator of the womenswear chain, as well as a temporary 12-month non-exclusive licence to continue to operate the brand. However, Mr Sharp said Debenhams would not sell the Principles brand from September, replacing it with women's clothing including pieces from the designers Betty Jackson and Jasper Conran.

Following the announcement, Singer Capital Markets upgraded its pre-tax profit forecast for Debenhams to £104.6m for the year to 31 August.

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