REPORT Debenhams announcing its full year results for the 52 weeks to August 29, 2015 said that positive sales momentum continued against background of refocused promotional activity. Group GTV increased by 1.3 percent and group revenue increased by 0.4 percent to 2,322.7 million
pounds (3,583.1 million dollars). Own brand full price sell-through increased by 7 percent. The UK sector GTV increased by 2.1percent and revenue by 1.1 percent.
Commenting on the company’s performance, Michael Sharp, Chief Executive of Debenhams, said, “We have delivered profits in line with market expectations, reflecting further progress against our strategic priorities. We have had an encouraging start to the year, with strong new product launches which have been well received by our customers, and we are in good shape to build on last year's strong performance over peak trading.”
Positive sales momentum
Positive performance in UK, the company said, was a result of continued online sales growth and the benefit of new store openings. Stores experienced a small level of sales decline from the channel shift into online. Operating profit increased by 5.6 percent reflecting the benefits from lower markdown and strong cost control within the group, as well as sales growth.
The international sector comprises of Danish and Irish stores, the franchise stores and online sales to non-UK addresses. In constant currency, GTV improved by 5.3 percent reflecting the continued strong performance in Denmark. In reported currency GTV was 2.2 percent lower than last year and revenue decreased by 2.5 percent, primarily impacted by the effect of the strengthening pound on the conversion of the Magasin du Nord and Republic of Ireland results. International operating profit increased by 0.3 percent despite the adverse foreign exchange movements.
For the 52 weeks to August 29, 2015, group like-for-like sales increased 2.1 percent on a constant currency basis and 0.6 percent on a reported basis. There was strong growth in online sales, which increased 11.4 percent, net of online returns to store, and Magasin du Nord, which grew 8.1 percent like-for-like in constant currency.
Initiatives that helped revenue growth
The company said that it managed to make progress against the strategic priorities as set out last year. The combination of 17 fewer days on promotion and tight stock control resulted in reduced markdown and a 90bps benefit to the gross margin rate. This was offset by the impact of sales mix from growing sales in the lower margin cosmetics and concession categories (60 bps) and planned investment in reducing prices in some categories (30 bps). The net effect on a full year basis was a flat margin rate compared with FY2014.
Operating costs before depreciation increased by 0.6 percent over the prior year. Group operating profit increased by 4.3 percent that resulted in a 7.3 percent increase in reported profit before tax. Excluding the non-recurring finance cost of 4.5 million pounds (6.9 million dollars) in FY2014, the year-on-year increase was 2.9 percent. Profit after tax increased by 7.2 percent.
Improved earnings per share, declares dividend Increased profits resulted in a 7 percent increase in both basic and diluted earnings per share to 7.6 pence.
An interim dividend of one pence per share was paid to shareholders on July 3 2015. The board is recommending a final dividend of 2.4 pence per share which will be paid to shareholders who are on the register on December 4, 2015, on January 22, 2016 taking the total dividend for the year to 3.4 pence. Given the cash generative nature of the business and confidence in future performance, the board intends to adopt a progressive dividend policy in future, applying earnings growth to both dividend increases and the rebuilding of cover towards a medium term target of 2.5 times.
Michael Sharp to step down as CEO
Michael Sharp has been Chief Executive of Debenhams since September 2011. Sharp now two months into his fifth year and has indicated that this is the right time for the Board to commence a succession planning process so that he can step down sometime in 2016. He will remain in post during the Christmas trading period and into 2016 and will assist the Board in the process of identifying his successor.
Under Sharp's leadership Debenhams has been delivering a four pillared strategy to build a leading international multi-channel brand. The board expects to see further good progress ahead.