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Debenhams Profits Plummet in First Half on Discounting Surge

Debenhams is putting a focus on apparel as it commits to moving faster and working harder to overcome the chain’s disappointing performance in the first half of the year.

In a Nutshell: Debenhams ends the first half with plummeting profits, which it largely attributed to heavy discounting in the face of similar promotions from competitors.

Along with digital, beauty, in-store experiences and cost reductions, fashion features prominently in the company’s current plan to turn things around. CEO Sergio Bucher said Debenhams has a “focus on improving fashion product so brands are well differentiated and offer excellent quality and value for the money.”

While Bucher said apparel “held share” in the first half, he’s looking to the new leadership team in this category, which includes managing director of fashion and home Steven Cook, and Richard Jones, trading director of global sourcing, to improve performance.

Already, he said the new hires have improved brand identity across collections and reduced duplication in the assortments, which has resulted in a 16 percent growth in the store’s Star collection.

To pique shoppers’ interest, Debenhams is bringing in more European brands to provide added freshness and better quality.

As for cost cutting measures, the chain reaffirmed plans to close 10 locations, two of which shuttered in January. After cutting down the size of one location by 20 percent resulted in improved EBITDA, Debenhams is set to follow suit in 30 more.

Sales: The company reported transaction value of 1.7 billion pounds ($2.4 billion) in the first half, a 1.6% decrease from the same time last year. Same store sales were down 2.2%, dragged down in the last week of the half by a winter blizzard that saw 100 stores close. Sales via digital grew by 9.7% over two years prior.

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Earnings: Profit before taxes took a nosedive in the first half only reaching 13.5 million pounds ($19 million), down 87.8 million pounds ($123 million) in the prior year period.

CEO’s Take: “The UK retail environment is undergoing profound change, and with the help of some important new senior hires, we are moving faster and working harder than ever to ensure Debenhams is well‐placed to outperform in this new retail world. We expect no help from the external environment, so we are focused on delivering our Debenhams Redesigned strategy, aiming to mitigate difficult trading conditions through self‐help initiatives,” said Bucher. “It has not been an easy first half and the extreme weather in the final week of the half had a material impact on our results. But I am hugely encouraged by the progress we are making to transform Debenhams for our customers.”