Today’s Falling Knife: Debenhams plc Drops 7%

Solid if unspectacular final results for Debenhams plc (LON:DEB).

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Debenhams (LSE: DEB), the fashion clothing, accessories and cosmetics retailer with 239 stores in 28 countries, today released final results for the year to 31 August 2013.  

Like-for-like sales rose 2% with the gross transaction value of total sales rising 2.5% to £2,777m.  International sales, while smaller, at £552m grew at a more promising rate of 3.7%.  Investors keep a keen eye on Debenhams’ online sales and will be heartened to see an increase of 46% to £366m.  Indeed, online sales, now in 67 countries, accounted for 13% of total sales, up from 9% in the previous year.

Despite this modest increase in revenues, group profits before tax fell by 2.7% to £154m.  However, due to a continuation of the share buyback policy using £40m of spare cash flow the earnings per share actually increased by 4.1% to 10.2 pence.  Even with this use of surplus cash, net debt only rose by £4m to a very manageable £372m.  The directors announced a final dividend of 2.4 pence per share bringing the total dividend for the year to 3.4 pence per share, an increase of 3%.

Commenting on the results, Michael Sharp, Chief Executive, said:

“I am pleased with our performance in 2013 given the very difficult conditions.  We gained market share in key categories, demonstrating the competitiveness of our product offer.   We continue to deliver growth and additional customer benefits through our strong multi-channel capabilities. 

“At the same time, we are working hard to ensure our UK stores adapt to the challenge of their changing role in a multi-channel world…..whilst consumer confidence may be showing signs of improvement, we expect that household incomes will remain under pressure from inflation growing ahead of wages. With this in mind, we remain cautious about the strength and pace of any consumer recovery in 2014 and expect the marketplace to remain highly competitive.”

Debenhams have opened stores in Chesterfield and Lichfield and transformed their flagship Oxford Street store in a modernisation program encompassing 12 other stores so far with the remaining 19 stores over the next 2 years.  In addition to this, 16 new stores are targeted to open over the next 4 years with 4 in 2014.

Overall, Debenhams does have a good debt position and progressive dividend policy but is still to completely convince investors that its transition to the online world will result in sufficient future growth.  Earnings per share growth has not been in double digits for some years and that has held the price-to-earnings multiple down under 11 times.  Investors initial reaction is disappointment with a 7% drop in the share price, but this could present an opportunity to get in on a growth story.

With a share price rising just 10% since 2009 in a bullish market Debenhams has been left behind.  Is now the time to invest?  It is certainly worth some further investigation.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Barry does not own shares in Debenhams. The Motley Fool has recommended shares in Debenhams.

More on Company Comment

Hand of person putting wood cube block with word VALUE on wooden table
Company Comment

Value has been building behind the Diageo share price

Despite the business growing, the Diageo share price first reached its current level just over 19 months ago and hasn't…

Read more »

Older couple walking in park
Investing Articles

5 stocks to buy for high and rising dividend income

I can see a host of shares to buy on the FTSE 100 offering me exceptional levels of income. Here…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I don’t care if FTSE 100 shares fall further, I’m buying them today

I'm happy to go shopping for FTSE 100 shares today, even though I accept that they could have further to…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Rolls-Royce shares are down 18% in a month and I’m finally going to buy them

Investors who bought Rolls-Royce shares have been repeatedly disappointed, but I'm willing to take a chance on them before they…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

How I’d invest £10k in a Stocks and Shares ISA today

Now looks like a good time to buy cheap FTSE 100 shares inside a Stocks and Shares ISA. These are…

Read more »

Black father holding daughter in a field of cows
Investing Articles

Today’s financial crisis is the perfect moment to buy cheap shares

I'm building a portfolio of FTSE 100 stocks by purchasing cheap shares whenever I see an opportunity. There's a good…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

I’d buy Tesco shares in October to bag their 5.4% yield 

Tesco shares have fallen lately but I think this makes them attractively valued for a dividend stock I would aim…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

I would do anything to hold Diageo in my portfolio (but I won’t do that)

Diageo is one of my favourite stocks on the entire FTSE 100 and I'd love to hold it, but one…

Read more »