Debenhams Ord 0.01p (DEB)

Company overview

Debenhams is a leading UK and Irish department store operator with over 150 stores in operation. Employing over 20,000 staff in total, the group also operates over 45 international franchises in 17 different countries, along with an online business outlet.

HL Comment (6 January 2009)

Although Debenhams can trace its history back to 1778, the name was first used in 1813 when William Debenham invested in an expansion programme for the business. The group eventually came to the stockmarket in 1927. As for the group’s more recent history, the company was again removed from the stockmarket via a private equity buyout back in December 2003 (Baroness Retail Limited, consisting predominantly of US private equity consortium Texas Pacific and Merrill Lynch), only again to be re-listed back in May 2006 at a price of 195p per share. Since then, whilst sceptics have argued that the private equity consortium may have removed most of the value for themselves, only to sell the group back to investors at a higher price, management have remained adamant that further progress can be made and that profits can be increased via a continued store expansion programme.

As of today, the debate remains ongoing. The group’s recent post Christmas trading statement (06Jan09) saw like-for-like sales continuing to decline (-3.3pc), although the retreat was broadly in line with analysts’ forecasts (between -2pc to -4pc). Furthermore, the rate of sales decline slowed in the run up to Christmas, whilst profitability over the trading period improved, given continued demand for designer value clothing products and tight group cost control. However, the group’s debt mountain (just under £1billion as of late August 2008) continues to cast a shadow, with refinancing arrangements pending.

Acting for positive investor considerations, management initiatives have left the gross profit margin flat over the year to date, whilst net debt had again been reduced. On the negative for investors, group debt continues to be relatively high, whilst like-for-like sales remain in negative territory. In conclusion, the update strengthened hopes that Debenhams could eventually prove a survivor in the capacity excessive retail sector, although it still remains far too early to call a complete recovery for the company. Market consensus opinion currently denotes a weak hold, although upgrades could now be forthcoming.

All yield figures are variable and not guaranteed.

Fundamental Data