Debenhams: What the analysts say

In our view this is a good set of numbers especially when considered against a difficult trading period in which the weather, often quite literally, dampened demand for clothing and fashion. It is particularly encouraging to see a pickup from the first half figures, although the reporting period does include a one-off boost from the Jubilee holiday, which makes comparisons difficult. That said, even stripping this out it is still clear that Debenhams has seen forward momentum in sales growth.
The only potential downside to the latest update comes from a more cautious note on gross margins. Although Debenhams has made good gains from increasing the proportion of own-label sales, in the current period this seems to have been offset by a slight change in the sales mix because of the weather. Lower margin products, such as beauty and a greater mix of concession business online have both eroded margins - Neil Saunders, Conlumino

Today’s Q3 trading update reports second half to date group like-for-likes excluding VAT up 3.1%, significantly better than we, and the market, had feared. This leaves the full-year 2012 to date group like-for-likes up 1.2%. Against this very positive sales result, the negative news is a downgrading of the full year 2012 gross margin guidance to -30bps from flat– Bethany Hocking, Investec

Nine refurbishments were undertaken in June, with another nine commenced. Given the scope for disruption, we were surprised at the strength of current like-for-like sales. Full year gross margin is expected to be down 30bps year-on-year versus previous assumption of -10bps (guidance flat), due to mix rather than markdown. Online sales rose 34.9% over the quarter. Endless aisle significantly improves online availability and conversion, with first half sales of 34.7% boosted to 43.4% by this single stock file equivalent– John Stevenson, Peel Hunt

Credit where credit is due. Although up against a tough comparable period and widespread distressed discounting on the high street, particularly for the months of May and June which were highlighted as very strong in last year’s statement, gross transaction value growth of 3.9% for the 16 weeks to 23rd June was better than our forecast 1.4% - Jean Roche, Panmure Gordon

Trading was enhanced by strong growth in multi-channel with sales up 35% over 16 weeks (versus an increase of 43% in the first half). Growth was also strong in beauty and concessions both of which are lower margin. The focus on under-indexed areas such as casualwear and accessories/footwear meant that these areas also showed growth, in contrast to other competitors. Home has continued to track up, helped by good response to changes in furniture and the catalogue launch – Matthew McEachran, Singer Capital Markets

While Debenhams remains rightly cautious for the rest of the year, particularly in relation to the impact of the Olympics, having seen a positive uplift from recent UK celebratory events we expect Debenhams’ strong offer to resonate well with shoppers visiting London, particularly as it makes headway with refurbishing its Oxford Street flagship. With a fall in gross margin forecast for the full year due to lower sales of private label womenswear, it must work hard to push its higher-margin own label clothing ranges in the fourth quarter, while also keeping an eye on the level of discounting and promotional activity to clear seasonal stock – Honor Westnedge, Verdict