Long-term shareholders of leading department store chain Debenhams (LSE: DEB) haven’t had much to cheer about in recent years, and after another sluggish year it seems that growth is still hard to come by. At first glance the shares look like a bargain trading at less than half their 2012 peak of 123.7p, but looks can sometimes be deceptive.
Beauty and gifts boost Christmas sales
Despite the battered share price and seemingly cheap valuation at eight times forward earnings, I don’t think Debenhams is an obvious recovery play, at least not yet. I would suggest that the market has priced-in the challenges and uncertainties the retail sector is currently facing, along with analysts’ predictions of a somewhat gloomy medium-term outlook. Indeed, consensus estimates suggest that the FTSE 250 retailer will post a 14% dip in earnings for the full year to the end of August, with a further 8% slide predicted for FY 2018.
There’s some good news however. Last month’s Christmas trading update was very positive, with the group making further progress in growing its non-clothing categories in line with its strategy. A particularly strong performance in Beauty and Gifts sales took the non-clothing sales mix to 57% during the 18 weeks to 7 January.
During the festive period Debenhams also managed to maintain its market share in a very competitive clothing market while continuing to reduce the number of clothing options as well as the level of discounts. Its stores have continued to reduce the level of promotional pricing activity, with a sixth season of reduced markdowns and a 2% improvement in full-price sell-through during the period. The retailer also hailed another successful Black Friday event, with strong year-on-year growth both in its stores and online operations.
Clearly retailers are struggling in the present climate, but a strong Christmas trading period will bring at least a little cheer to Debenhams shareholders. While I think growth investors should look elsewhere, existing shareholders and investors seeking income shouldn’t complain about the generous dividend payouts that Debenhams continues to offer. It now yields a magnificent 6.5% thanks to the depressed share price.
Another mid-cap firm that’s suffered a share price slump in recent months is UK property developer Berkeley Group (LSE: BKG). However in its most recent update, the Cobham-based group reported better-than-expected trading for the first half of its financial year, with a 33.9% improvement in pre-tax profits to £392m, exceeding previous estimates of around £351.7m.
During a period of political upheaval around the world, which has affected the immediate economic outlook, Berkeley has continued to focus on its core business of regenerating run-down estates and transforming ex-industrial land. With the shares now trading at a 20% discount to a year ago, the £2 per share full-year dividend payout equates to a very tasty 7.1% yield, coupled with a bargain valuation of just seven times forecast earnings for the current financial year.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has recommended Berkeley Group Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.