Debenhams still returning cash to shareholders despite tough conditions

Department store group Debenhams surged on Thursday after the company reported resilient results and said it would be continuing its share buy-back programme for the next 12 months amidst 'challenging' conditions for the British consumer.

Shares were up 6.06% at 115.6p in mid-morning trade.

Statutory revenue increased 2.5% in the 52 weeks to September 1st from £2,176.4m to £2,229.8m, while pre-tax profit rose 4.2% from £151.9m to £158.3m. However, group gross margin fell by 30 basis points during the year, although this was expected due to a weather-related sales mix change towards health beauty.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Like-for-like (LFL) sales increased by 2.3% including VAT (+1.6% excluding VAT), with new space accounting for 1.0% of this growth - the company opened two new UK stores and seven new franchise stores as well as the annualising of stores opened in the prior year.

Nevertheless, the firm said that the UK experienced "challenging trading conditions" during the year.A warm, dry autumn in the first half of the financial year and a cold, wet spring and summer in the second half had an impact on demand for seasonal products such as clothing.

"In addition, consumer confidence remained depressed throughout the year as macroeconomic concerns about both the UK economy and the widely reported issues affecting the eurozone weighed on consumers' minds and budgets.Against this background, Debenhams delivered a good performance with higher sales and market share gains," the firm said.

The firm raised its final dividend by 15% to 2.3p per share, bringing the full-year payout to 3.3p, up 10% year-on-year.

With £259.7m of cash generated from operating activities during the year, Debenhams said it intends to grow its dividend in line with maintaining cover at three times earnings.

Meanwhile, following the £20m share repurchase programme completed over the last six months, the company said that it intends to buy-back a further £40m of shares over the next year in an effort to return surplus cash to shareholders.

No change in trading conditions expected, but outlook solid

Chief Excecutive Michael Sharp said that while the economic environment is expected to remain subdued next year, further progress is anticipated.

"We will always manage cash, costs, stocks and margins closely but we are committed to continue prudent investment in key areas to deliver long-term sustainable growth as well as further returns of capital to drive shareholder value," he said.

The company revealed its plans to open a further 17 stores over the next five years, which are expected to increase sales by £150m. According to media reports, the new stores could create 1,700 jobs.

By the year-end, Debenhams had 239 stores across 28 countries and operated online in 67 nations. The company today raised its target number for franchise stores from 130 to 150.