TIDMDEB
RNS Number : 0956K
Debenhams plc
20 June 2014
20 June 2014
DEBENHAMS PLC
INTERIM MANAGEMENT STATEMENT
Debenhams plc, the leading international, multi-channel brand,
today announces its interim management statement for the 15 weeks
to 14 June 2014. Due to a change in the timing of this year's
summer sale, we are also providing sales data for the 14 weeks to 7
June 2014 which we believe provides a more accurate view of our
performance across the second half of the financial year.
Headlines
-- Group gross transaction value: 14 weeks up 1.6% (15 weeks flat)
-- Group like-for-like sales: 14 weeks up 0.7% (15 weeks down 1.0%)
-- Continued growth in online and strong performance from international business
-- Gross margin guidance for full year unchanged
-- Strategy to refocus promotional activity delivering higher
full price sell-through: summer sale starting two weeks later than
last year
-- Trials of new concessions including Sports Direct and Costa to commence before year end
-- Commencing debt investor roadshow in relation to GBP200m 7 year bond issue
Michael Sharp, Chief Executive of Debenhams, said:
"The foundation of our business is the strength of our product
proposition which meets our customers' needs for choice, quality
and value. In April we set out five priorities to address the
challenges that Debenhams faced in the first half of the year. Our
performance in the second half reflects the work we have done,
particularly to refocus our promotional activity. Although early
days, this strategy is delivering higher full price sales and we
expect to see the benefit through gross margin progression in the
second half of the year and in 2015.
"Looking forward, whilst it is clear that consumers are aware of
improvements in economic indicators, they are not yet seeing a
significant improvement in their disposable income. Our outlook for
the full year remains unchanged."
Sales performance
In line with the strategy to refocus our promotional activity
which was outlined at the time of our interim results in April, the
summer sale is scheduled to start on 26 June (week 43) this year
compared to 12 June (week 41) last year. Therefore, as well as
providing sales data for the 15 weeks to 14 June 2014, we are also
providing information for the 14 weeks to 7 June 2014 which we
believe gives a more accurate view of our performance during the
second half.
The movement in gross transaction value (GTV) and like-for-like
sales for the second half to date and the year to date are shown in
the table below.
Second half Year-to-date
14 wks to 15 wks to 40 wks to 41 wks to
7 June 14 June 7 June 14 June
---------- ---------- ---------- ----------
Group GTV +1.6% Flat +1.9% +1.4%
---------- ---------- ---------- ----------
Group LFL
sales +0.7% -1.0% +1.3% +0.7%
---------- ---------- ---------- ----------
In the UK, online continued to grow. We saw a slowing in the
rate of decline in stores compared with the first half of the year,
aided by a good performance from Oxford Street as it traded its
first full quarter following completion of the flagship
transformation in February. Importantly, our strategy to refocus
our promotional activity delivered higher levels of full price
sell-through compared to last year.
Within the international segment, a strong sales performance
from Magasin du Nord and the franchise business more than offset
continued weakness in the Republic of Ireland stores.
Guidance and outlook
We expect our revised promotional strategy will continue to
result in lower markdown leading to a stronger gross margin
performance for the second half. Our guidance for gross margin for
the full year is therefore unchanged at a decline of 50-70 basis
points.
Cost guidance remains in line with that provided at the time of
the interim results in April.
Our outlook for the year as a whole is unchanged.
Strategy update
We continue to focus on the five priorities set out at the
interim results in April under the pillars of our strategy to build
a leading international, multi-channel brand.
Delivering a compelling customer proposition
Product is at the heart of everything we do. We are continuing
to invest in our differentiated product and brand strategy to meet
our customers' needs for choice, quality and value. During the
second half we have improved the value proposition within
childrenswear to improve our competitive positioning. This move has
been supported by instore, online and email marketing to
communicate our better value to customers clearly.
More prudent sales targets and tighter buying have enabled us to
start refocusing our promotional strategy and as a result we have
seen higher full price sell-through. Since the end of the January
sale we have removed a number of events from the promotional
calendar and reduced both the level of discount offered and stock
participation in some other events. The start of the summer sale
has been moved back by two weeks to provide more time for full
price sales. This process will evolve over time and we will trial
different approaches to ensure we achieve the right balance between
improving our profitability and delivering great value for
customers.
Increasing availability and choice through multi-channel
The online business continues to grow with profitability already
benefiting from the refocusing of promotions. Online retailing is
inherently more promotional than store-based retailing as
promotions are a key customer acquisition tool. Full price
sell-through has increased significantly in the second half,
leading to an improvement in both margin rate and cash margin. We
have seen a slowing in the rate of sales growth online but this is
only to be expected given the level of promotions we ran during the
period last year as we sought to clear excess stock. Group online
sales increased by 10.0% during the 14 weeks to 7 June and by 8.4%
in the 15 weeks to 14 June, representing 15.2% of total sales in
both periods. For 40 weeks to 7 June, online sales grew by 19.5%
and by 18.8% for the 41 weeks to 14 June.
Our work to build a more competitive and more economic
multi-channel business is ongoing. We remain on track to introduce
a wider range of premium delivery options ahead of Christmas 2014
which will meet customers' increasing need for convenience. These
include extending the cut-off time for next day delivery to home
from 2pm to up to 10pm, evening delivery, weekend delivery and
nominated day delivery. We will also start to fulfil Click &
Collect orders from store stock whenever possible. We are confident
that these improvements will improve choice for our customers,
drive sales and allow us to recover a higher level of fulfilment
costs and as a result we would expect to see the rate of online
sales growth increase once these services are available.
Focusing on UK retail
Despite the UK high street remaining highly competitive, we have
seen a slowing in the rate of sales decline in our UK stores
compared with the first half of the year, aided by the performance
of Oxford Street which is trading in line with expectations
following the completion of its transformation into our
international flagship store in February. Across the UK, we saw
strong growth in Click & Collect sales and sales from instore
kiosks, which demonstrate the continuing importance of stores in a
multi-channel world.
Driving a better return from our UK store assets by increasing
sales densities on underperforming space is a key part of our
strategy. Over the next six months we will commence trials with a
number of new brands including Sports Direct which will open two
sports concessions in our stores in Harrow and Southsea during
August and potentially more stores before the end of the calendar
year. The UK's favourite coffee brand Costa will launch concessions
in six stores: Guildford and Slough during June and Derby, Exeter,
Haverfordwest and Woking during July. We are in discussion with a
number of other brands.
A new 60,000 sq ft store opened in Hereford during May. One
further store is due to open in Cheshire Oaks before the end of the
financial year (48,000 sq ft). The new store pipeline for future
years stands at 12 including two stores in the next financial year.
The average size of these new stores is smaller than the current
estate and the average lease length is shorter, with more than half
at a lease length of 15 years or shorter.
Expanding the brand internationally
We are continuing to leverage our customer proposition and
retail experience to accelerate international growth and have seen
good results in the second half to date.
Magasin du Nord performed strongly with like-for-like sales up
by 10.4% during the 15 week period in local currency compared to
the prior year. The results of the Republic of Ireland stores
continue to be impacted by the difficult market environment.
The franchise business saw good sales growth. Three new
franchise stores have opened during the second half, including our
first franchise in Latvia. The store in Georgia closes today taking
the total number of franchise stores currently to 67 in 25
countries. The contracted new store pipeline stands at 22 stores
predominantly in the Middle East, Eastern Europe and Southeast
Asia. Discussions are ongoing for a further 50 stores.
Operational effectiveness
We are working to improve the operational effectiveness of the
business with the need for greater flexibility in our global
sourcing to protect product quality, improve costs and reduce lead
times. We are also investing in better systems to support our
merchandising, planning and buying as we evolve from a UK
department store model to a true international and multi-channel
business.
We are actively developing our international supply chain to
reflect our sourcing and growing international presence, with
direct supply for more than 50% of our exports to franchise
partners now possible through our hub in Singapore.
Our UK logistics capability is being re-engineered to ensure we
optimise handling and distribution costs, with greater exploitation
of our own fleet for next day Click & Collect services and the
progressive introduction of automation in parts of our fulfilment
operations.
These changes are underpinned by a continuous investment in the
quality and accuracy of our single stock file starting with the
ability to fulfil Click & Collect orders from store stock
before the end of this calendar year followed by a single inventory
management system in the following year.
We hope to see the first benefits of these changes in the next
financial year.
Capital structure
There has been no material change to the financial position of
the Group since the beginning of the second half other than normal
seasonal movements.
We announced at the interim results in April that we would be
exploring opportunities to diversify our sources of funding over
the next year. Given the current attractive state of credit markets
at this time, we have expedited this process and are commencing a
debt investor roadshow in respect of a GBP200 million 7 year bond
issue. If we proceed with the bond issue, we will contemporaneously
extend our existing bank financing arrangements to October 2018,
thereby ensuring we continue to benefit from the attractive pricing
on that facility. We expect overall debt facilities, including the
bond issue, to remain unchanged at GBP650 million.
Associated with this, we would expected to see a non-cash
pre-tax write-off of c.GBP4.5 million in the current year relating
to capitalised fees on our existing bank facility.
Subject to final terms, the refinancing of our borrowing
facilities in this way is expected to increase next year's interest
charge to GBP22-24 million compared to the guidance for the current
financial year of GBP18-20 million. At this stage we would expect
this higher interest charge to be largely offset by a number of
factors outlined in the strategy update including lower markdown
leading to improved margin delivery, tight cost management, the
benefits of enhanced operational efficiency and the higher recovery
of online fulfilment costs following the introduction of enhanced
delivery options ahead of the Christmas 2014 peak. Importantly, we
would expect to achieve a material saving in financing costs over
the life of the bond as a result of the attractive rates currently
available to borrowers.
- Ends -
A conference call for analysts and investors will be held at
9:00am today. To join the call, please dial +44 (0) 20 3427 1902 or
+1 212 444 0412, PIN 7661130. A recording will be available for
seven days on +44 (0) 20 3427 0598 or +1 347 366 9565, PIN
7661130.
Enquiries
Analysts and Investors
Lisa Williams, Debenhams plc 020 3549 6304, 07908 483841
Media
Simon Sporborg, Brunswick Group 020 7404 5959
Tim Danaher, Brunswick Group 020 7404 5959
NOTES TO EDITORS
Debenhams is a leading international, multi-channel brand with a
proud British heritage which trades out of 243 stores across 28
countries. Debenhams gives its customers around the world a unique,
differentiated and exclusive mix of own brands, international
brands and concessions.
In the UK, Debenhams has a top three market position in
womenswear and menswear and a top ten share in childrenswear. It
holds the number two market position in premium health and
beauty.
Debenhams has been investing in British design for 20 years
through its exclusive Designers at Debenhams portfolio of brands.
Current designers include Abigail Ahern, Ted Baker, Jeff Banks,
Jasper Conran, FrostFrench, Patrick Grant, Henry Holland, Betty
Jackson, Ben de Lisi, Todd Lynn, Julien Macdonald, Jenny Packham,
Pearce Fionda, Stephen Jones, Preen, Janet Reger, John Rocha,
Jonathan Saunders, Ashley Thomas, Eric Van Peterson and Matthew
Williamson.
Statements made in this announcement that look forward in time
or that express management's beliefs, expectations or estimates
regarding future occurrences and prospects are "forward-looking
statements" within the meaning of the United States federal
securities laws. These forward-looking statements reflect
Debenhams' current expectations concerning future events and actual
results may differ materially from current expectations or
historical results. Neither the content of the Company's website
nor the content of any website accessible from hyperlinks on the
Company's website (or any other website) is (or is deemed to be)
incorporated into or forms (or is deemed to form) part of this
announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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