Debenhams beats expectations, announces buy-back

Half-year profits at High Street retail chain Debenhams were ahead of market forecasts, giving the board confidence the department store group will hit full year expectations.

Headline profit before tax in the 26 weeks to March 3rd eased 0.5% to £128.5m from £129.2m the year before, but was ahead of what analysts tracking the stock had been expecting; the range of forecasts ran from £124m to £125m.

While expressing confidence in meeting the market's expectations for the full year, the group noted that disruption from its store modernisation programme will be at highest between now and September, while it is also difficult to predict what effect major events such as the Queen's Diamond Jubilee, the Olympic games and Euro 2012 would have on consumer behaviour, never mind the sluggish performance of the UK economy.

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Revenue rose 1.3% to £1,238.3m from £1,222.3m the year before. As reported at the beginning of April, the group's gross transaction value rose 1.4% to £1,483.6m from £1,463.0m the previous year. Like-for-like (LFL) sales growth (excluding value added tax) was confirmed at 0.3%.

Earnings per share rose 4.2% to 7.4p and the dividend was maintained at 1p per share. Net debt fell from £351.6m to £311.8m. Capital expenditure guidance for the year remains in the region of £120m, with the group having already splashed out £47.7m in the first half.

Total fashion market share for the 12 weeks to March 18th was flat at 4.7%. Womenswear share fell by 10 basis points (one-tenth of a percentage point) as the firm completed the work to replace closed concessions. Menswear grew by 20 basis points whilst childrenswear was flat. Total stock grew by 4.5%, largely due to new space and growth in online sales.

The international online delivery business was expanded to 40 countries with online sales up 34.7%, excluding the Magasin du Nord business, which saw its LFL sales rise 0.9%.

The company also said: "We believe that Debenhams will increasingly generate cash in excess of that required to fund our growth plans and to grow the dividend. Alongside our goal of moving towards 1.0x net debt/EBITDA [earnings before interest, tax, depreciation and amortisation], we are today announcing that we will commence a long-term share buy-back programme.

The decision to buy back shares was not altogether unexpected, and the main point of curiosity was the size of the buy-back programme. Debenhams said it would spend up to £20m buying back shares over the next six months, which is a drop in the ocean compared to Debenhams' market capitalisation of just over £1bn, but the group tantalised with the prospect of announcing a ramp-up in the size of the repurchase programme when it announces its full year results in October.

"We are pleased with our results for the first half, with profit before tax ahead of market expectations despite the challenges presented by the overall retail climate and unfavourable weather conditions in the autumn," said Michael Sharp, the group's Chief Executive.

NR