Debenhams shrugs off concern

Jun 25 2008 by Iain Laing, The Journal

DEBENHAMS dismissed fears over its financial health yesterday as the firm posted its first like-for-like sales rise since Christmas.

The group rushed out a trading statement more than a week ahead of schedule to combat “inaccurate market speculation” that included predictions of a near-double-digit sales fall and threats to its banking covenants.

The rumours caused the group’s shares to plunge to an all-time low of 39p on Monday, following an 18% fall on Friday.

But chief executive Rob Templeman said the chain, which has 145 stores in the UK and Ireland, enjoyed a 1% underlying sales rise during the past 10 weeks. That compared to a drop of 0.7% during the half year to March.

He said: “It’s tough out there, but I am pleased with the numbers we have reported. They are considerably better than others in the sector.”

Shares in the group rose 13% at one point after the update, but still remain nearly a third of last year’s pre-credit crunch high.

Mr Templeman would not comment on rumours that Debenhams’ banking covenants were in danger of being breached.

But he said: “We have got £140m of capital expenditure budgeted this year.

“The fact that we are spending £140m on cap-ex says something about our leveraged positions.

“I think the best response to inaccurate market rumours is to put the numbers out there.”

Debenhams has been saddled with debt after being floated by private equity owners in May 2006. The group said on Monday it remained highly cash-generative, with net debt at the year end expected to be in line with market estimates.

The company said there were no changes to plans to open a four-storey 180,000sq ft Debenhams store in the extended Eldon Square shopping mall in Newcastle.

The firm also quashed rumours it had tightened up on supplier payment terms amid tougher recent trading, saying: “No changes have been made to supplier terms outside the ordinary course of business.”

Broker Numis said the impromptu update showed “reports of Debenhams’ demise seem premature”.

But analyst Nick Coulter said: “We continue to see earnings risk ... as we move into the autumn and remain concerned by the lack of visibility on debt covenants.”

It’s tough out there, but I am pleased with the numbers we have reported