Comment: Can department store Debenhams get back on track?

Department store group Debenhams has fallen from grace with investors, with almost 15% wiped off the retailer’s share price after Monday’s profit warning.

Snow disruption in January was blamed for the upset, the latest in a run of disconcerting news.

Lower than expected margins at Christmas, followed by the unexpected revelation that a pension credit had boosted EBIT by almost £11m last year, preceded the disclosure this week that first-half profits will be about £10m lower than expected. It has all combined to make investors warier of a stock that rose 100% last year and undermined the confidence that many came away with from January’s strategy presentation for investors.

In the end, investment decisions will come down to whether Debenhams’ long-term strategy still looks convincing.

While many believe that to be the case, the recent developments make others more circumspect.

An uptick in February promotions in response to the January sales slump and an associated impact on margins has rekindled fears among some observers that Debenhams is too closely associated by consumers with spectacular Sales and they are therefore reluctant to buy at what they perceive to be full-price.

To that analysts add the uncertainty about the effect of the overhaul of its Oxford Street store this year, and wonder whether there may be more bad news to come.

But the initiatives that Debenhams is undertaking such as a big shift into multichannel, international growth and building on the established appeal of its clothing collections, along with brand rather than just promotion-led advertising, still look sound. And chief executive Michael Sharp has put his money where his mouth is with a series of share purchases, making it clear that he remains confident that Debenhams will reward the investment.

It’s unlikely that Debenhams is broken, but for the time being many will choose to pause for breath until evidence mounts again that all is back on track.