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Debenhams PLC Shares Crash Despite Avoiding 2013 Nightmare Christmas Repeat

Shares in high-street retailer Debenhams (LSE: DEB) were in free-fall in early trading this morning, shedding 7.7%, as its Christmas trading update fell short of investors’ expectations.

Record trading in the week leading up to Christmas saw Debenhams grow like-for-like sales by 4.9% over the Christmas period. Investors had feared that Black Friday promotions could impact Christmas sales, but the retailer seems to have avoided any cannibalisation of sales.

However, despite solid progress, the market was unimpressed. The upset was likely caused by margin expansion, which the company said would come it at the low end of its 10-40bps guidance after a strong performance from lower-margin categories such as beauty and concession brands.

Online growth also slowed to a still-impressive 28.9% due to the company’s strategy to sell at a discount less often across the business. This seemed a poor excuse, considering that more full-price sales should have contributed to stronger margin growth overall.

CEO Michael Sharp said he was happy with the results, highlighting the transformational progress made by the company:

“I am pleased with our performance in the critical Christmas trading weeks, driven by our strength in a diverse range of product categories and a strong marketing campaign focused on gifting… We now have a competitive online proposition with next day delivery to home and next day click and collect, which customers took full advantage of and which performed well over Christmas.”

Debenhams’ recovery seems to be taking hold, if at a slightly slower pace than the market expected.

Its focus on less discounting, a more competitive online offering and the addition of Costa Coffee, Sports Direct, Mothercare and Monsoon to larger stores to attract custom has seen sales and margins heading in the right direction.

Overall, these results reveal a massive improvement in business performance when compared to last year’s terrible Christmas season. The company demanded discounts from suppliers only eight days before Christmas and a profit warning on New Year’s Eve 2013 saw finance director Simon Herrick leave the company.

The share price has barely recovered three pence a year later.

Trading on a PE of just under 10 and yielding nearly 5%, Debenhams could outperform if its recovery strengthens, but headwinds facing the highstreet means this is no certain thing.

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Zach Coffell has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.