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Against the backdrop of a troubled UK retail market (9:30 UK retail sales missed expectations), Debenhams only adds to the bad news with another ugly profits warning, this time forcing it to rebase the dividend to 0.5p (-51%), as some had speculated, to preserve cash. This will, of course, anger those already sitting on significant capital losses (shares -75% from June 2015 highs of 97.96p, -57% from late 2017 support-turned-resistance at 51p) who have perhaps only been hanging on for an uncertain, but hoped-for 7% yield. Especially now that this has been scythed by two-thirds to a measly 2.3% in comparison. This means all the upside rests in a a share price rebound, which surely requires a significant uptick in sales performance and profitability.
Management now sees full-year profits at the lower end of a £50-60M broker range. This chilling backtrack in guidance is in response to a dramatic 84% plunge in first-half pre-tax profits, while a 14.4% rise in Net Debt almost certainly added to the pressure reduce the dividend. To add insult to injury, CFO Matt Smith still can’t leave for competitor Selfridge’s because a replacement is yet to be found, perhaps because nobody dares to step into his shoes, which will do little to inspire confidence in the retail group’s outlook and its ambitious turnaround strategy: “Debenhams Redesigned”.
Today’s news takes the share back down towards all-time lows of 21p in early April, as investors priced in poor Easter shopping weekend and recent severe cold weather and snow for the sector. It also adds to a dreadful start for the year, when a disappointing Christmas trading statement resulted in a profits warning and a corresponding 15% share price plunge. And when you add the recent demise of multiple High Street retail and food outlets, and a downbeat message from retail property owner Hammerson yesterday, you can understand why investor appetite for exposure to UK retail has turned sour.
The question now is whether Debenhams can now rise from the ashes as a phoenix of premium retail, or whether it is destined to follow others suffering under the weight of online competition, unable to adapt to the new demands of a still-squeezed UK consumer and a challenging market.
Artjom Hatsaturjants, Research Analyst, 19 Apr 2018
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