Stock of the day 07/01/2016 – Debenhams PLC

Can Debenhams avoid the sector-pitfalls that have struck Next and Marks & Spencer when it reveals its latest trading statement next Tuesday?

With Next seeing an unexpected fall in holiday sales, and Marks & Spencer’s seeing a clothing sales decline so steep over Christmas that CEO Marc Bolland has been forced to announce he is stepping down, Debenhams has been sent to near 14 month lows before it has even revealed its own figures. Yet at points in 2015 things had looked so promising for the high street staple.

After starting last year at 76p things didn’t get off to the greatest start for Debenhams, sliding to a 2015 low of 69p by mid-January following a trading update that warned a ‘challenging’ Christmas season (sound familiar?) would harm first half profits. Yet the stock soon picked itself back upon, dusted itself off, and began to climb, reaching around 80p by mid-April.

It was here where Debenhams entered its most fecund period, its half year results, whilst not spectacular, coming in far better than expected. A 4.3% rise in pre-tax profit took the figure to £88.9 million (spurred on by a 1.3% rise in like-for-like group sales) causing Debenham’s to surge around 12% in the aftermath. Add onto that a 5% jump post-Tory election win and the stock was trading at 98p (an 18 month high) by the end of May.


(Source: IT-Finance.com 07/01/2016)

Yet Debenhams couldn’t maintain this good form, and as it entered June the stock began to slide. An end of month update, which saw underlying sales remaining flat but with a 16.7% increase in online sales, failed to stall Debenhams’ decline, and by mid-August the stock had dipped below 90p. Of course there was still a lot more turmoil to come in August, the month’s market-wide collapse leaving Debenhams at a 5 month low of 73p by the start of September.

Things admittedly began to pick up after the stock hit that nadir. Climbing back to 90p by the start of November, Debenhams was boosted by a set of full year results (announced at the end of October) that saw a 7.3% rise in pre-tax profit to £113.5 million alongside a 2.1% increase in like-for-like group sales. Perhaps just as importantly was the news that unpopular CEO Michael Sharp would be stepping down in 2016 amidst reports of shareholder pressure.

However, just like in May, this recovery soon began to unravel; a fall across November was then exacerbated at the start of December by a warning from experts that the company was ‘cannibalising’ its sales by taking traffic away from the high street in favour of a greater online presence. Accelerating its losses as the year wrapped up, the Christmas woes for Next and M&S merely made things worse for Debenhams as it entered 2016, leaving the stock at its aforementioned 14 month low of 68p (IT-Finance.com, 07/01/2016).

Debenhams PLC has a consensus rating of ‘Hold’ with an average target price of 82p.