Debenhams: What the analysts say

“The Debenhams’ story has moved from one of gross margin accretion to multi-channel growth, in our view. Having grown online clothing market share from almost nothing two years ago to 3.4% at present, Debs is planning to double this over the next four years. With a portfolio of only 160 stores and initiatives already in place to improve availability and delivery options (key online growth drivers), multichannel growth should be a key like-for-like driver.” - Gillian Hilditch, JP Morgan Cazenove

“Debenhams has ended the year on a high, delivering like-for-like growth of 3.7% in the final 10 weeks to end August. This clearly contrasts comments made by Next last week and confirms good market share gains, which we believe are accelerating on the back of the strategic initiatives. We expect some smallish upgrades to full year profit before tax today, but it should be noted that this includes some reinvestment in the fourth quarter into marketing and especially staffing. Debenhams therefore finds itself in a strengthening position which we believe is not yet fully factored into the valuation.”- Matthew McEachran, Singer

“Michael Sharp’s focus on the customer is paying off, as is his faith in newly recruited retail director, Mike Goring. We suspect that this outperformance is a function of a number of initiatives across the entire business. The stores are easy to shop, with well-targeted product clearly displayed. This shouldn’t take anything away from the product line up itself which continues to deliver excellent value to customers.

“Strong trading momentum is encouraging management to invest for the future. The store modernisation programme is generating a return on capital of 15%. Perhaps more importantly in both Red Herring and Principles, management is testing an investment in widening the buying and merchandising teams as well as putting more staff on the shop floor in support of these brands.” - Eithne O’Leary, Oriel Securities

“Debenhams reports markedly better than expected like-for-like sales for the 10 weeks to September 1, with 20 basis points womenswear market share improvements over the quarter, yet guides towards profits in line with market expectations. We think that the main reasons for today’s lack of profit upgrade is additional investment in systems and logistics to support the multi-channel business, since Debenhams’s roots do not lie in home shopping.” - Jean Roche, Panmure Gordon

“Debenhams continues to benefit from a high level of self-help that will derive sales momentum over the year ahead. Online initiatives, including the “endless aisle”, which gives online customers access to store stocks and has driven significant improvements in availability, continue to lift multi-channel participation. Coupled with the refurbishment programme sales uplifts, range improvements, improving gross margins outlook and reduced double running costs for new warehousing, we see Debenhams continuing to outperform over full-year expectations.” – John Stevenson, Peel Hunt

“While we do not expect material changes to consensus for this year or next at this early stage, we maintain our view that we are at the early stages of a sales driven earnings upgrade cycle for Debenhams, given the self-help initiatives in place that are helping to drive meaningful and, we think, sustainable market share gains. Given how volatile trading conditions are right now, management caution in the outlook is to be expected.” – Sanjay Vidyarthi, Espirito Santo

“It is true that strong online growth and beauty business has boosted the overall like-for-like sales growth, but that is true of many of its rivals, including John Lewis. The fact that Debenhams has said that full-year profit before tax will be only “in line” with market expectations, despite the sales beat over the last 10 weeks implies that there is something not quite right, but this may be an operating cost/revenue investment issue. So, pending more news with the finals on October 25, we must doff our hats to the much maligned management of Debenhams.” - Nick Bubb, independent analyst