Debenhams cuts dividend amid uncertainty

Debenhams slashed its shareholder payout today as it focused efforts on coping with the consumer downturn and cutting a £1bn (€1.2bn) debt mountain.

Reporting a 16% drop in full-year profits to £110.1m (€141.7m), Debenhams said it would manage the business “tightly” after difficult and uncertain market conditions left like-for-like sales 4.2% lower in the past six weeks.

Despite the downturn, Debenhams said it had grown market share in clothing and made further progress with its programme of store openings and refits.

Its portfolio comprised 139 department stores and ten Desire shops at the end of August. However, a new site opened this week and a further four department stores are due to open in this financial year in the UK, including a flagship store at London’s new Westfield complex.

Chief executive Rob Templeman said capital expenditure on new stores amounted to £60.9m (€78.3m) in the financial year to August 30, with the projects delivering strong returns for the company.

Explaining the decision to halve the dividend to 3p a share, Mr Templeman said: “We think the best place to put shareholders’ money at the moment is in new stores because we are getting a return of 60% on capital.”

He said extensive changes to womenswear and a strong performance by the company’s Designers at Debenhams range had also helped the group.

Mr Templeman added: “We will remain focused on managing the business tightly in light of difficult and uncertain market conditions.”

Debenhams shares rose 3% today as analysts said the update met expectations.

Analyst Philip Dorgan of Panmure Gordon stockbrokers said Debenhams was doing “a good job in difficult circumstances”, but it added the company’s high level of borrowing would continue to trouble the business.

The figure is a legacy from private equity ownership, when the business was loaded with debt before returning to the stock market.

It has pledged further cost savings and will lower capital expenditure by around £30m (€38.6m) to £90m (€115.8m) in the current financial year.

But Mr Dorgan added of the £1bn (€1.2bn) figure: “Further initiatives, while laudable, do not look likely to make meaningful inroads into this number, so we expect that the market will continue to worry about it.”