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Is it time to get out of Debenhams shares?

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Debenhams shares have continued to crater amid all the mounting doom and gloom on the UK high street. They are trading near all-time lows of 22p (down from 52p a year ago). Not only are there the high street worries to focus on, but there are also company-specific concerns surrounding its large store footprint, its long leases and an inadequate online offering.

Debenhams results: make or break for Bucher

Debenhams has also been leaning heavily on hefty discounting and is experiencing margin pressure. Chief executive Sergio Bucher will be hoping to counter the concerns of analysts on Thursday when the Debenhams results are out. These worries have been heightened by January’s weak Christmas update and profit warning. He needs to prove that last April’s Debenhams Redesigned strategy is working and that he really is worth the £1 million – yes, you read that right – which Debenhams is paying him.

Analysts will be looking for a pre-tax profit of £45 million compared to £88 million a year ago and the interim dividend, which was 1.025p last year.

Stock broker AJ Bell says investors should look out for comments on gross margin, which has been seen to be falling by 1.5% for the year as a whole. Debenhams is meant to have a plan to find £10 million in incremental cost savings. Any update on January’s forecast that full year pre-tax profits would come in between £55 million and £65 million (versus £95 million last year) will be under particular scrutiny.

Debenhams was forced to close many of its stores during the Arctic weather conditions in March. But the department store chain did very badly over Christmas and shareholders are braced for pre-tax profits to be down by 50% when the Debenhams results come out on Thursday.

Debenhams share price has been volatile in the short term

Debenhams’ share price has been really volatile over the last week, with a spike to 22.50 on Tuesday. Look at the three month chart for Debenhams shares and you can see the market is already starting to price in bad news. Debenhams shares were trading at the 30 mark on 16 January; the decline has been fairly consistent since then.

Debenhams shares certainly look like a sell, particularly as the doom and gloom surrounding the UK high street continues. It does not seem as if many UK retailers – outside the more buoyant supermarket sector – are able to keep their heads above water. It looks like it will be a rough spring for retail stocks.

 

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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