Debenhams is still not out of the woods
IT’S BEEN a rollercoaster week for Debenhams shareholders.
News that the beleaguered high street retailer had secured a £40million extension to its credit facilities and signed a new supply chain agreement saw the shares jump as much as 40 per cent last Tuesday, but that gain was erased over the next few days.
While the ability to draw on the extra cash will ease nerves to some degree, the group still faces huge challenges.
Trading conditions are extremely difficult, profits are almost non-existent and cash flows are tight. Debenhams is already struggling to refinance its debts, so it’s hard to see how a £200million bond due in 2021 won’t cause a problem. There are serious questions around the leadership, too. Mike Ashley’s Sports Direct already has a near-30 per cent stake in the business, and speculation has been growing that he’s looking to take control of the 241-year-old group.
Debenhams has already declined his offer of a cash injection.
Having hauled House of Fraser and Evans Cycles aboard the Sports Direct lifeboat after they entered administration, it’s possible the retail tycoon is looking to do the same at Debenhams, should its problems get worse. Debenhams has some attractive assets – the Danish business is doing reasonably well, as is the online operation. Sales were up
4.6 per cent over the Christmas period.
However, these positives are silver linings on a pretty big cloud. The core high street business still contributes the lion’s share of revenue, and with like-for-like sales down 5.7 per cent over Christmas, it’s clearly in trouble.
The group is closing some underperforming stores, but extending this programme isn’t really an option – the group is tied into long leases. In fact, without recently identified extra cost savings, Debenhams would already be slipping into a loss.
These factors, together with the far from favourable backdrop of declining high street footfall and uncertainty around Brexit, mean earnings forecasts have been tumbling, and the shares are among the most shorted on the stock market. “This article is designed for investors who make their own decisions without advice, if unsure whether an investment is right for you, you should seek advice. Shares can rise and fall in value so you could get back less than you invest.”