Debenhams look for lift from Sports Direct deal

Debenhams' clothing range proved unpopular at Christmas. Picture: Contributed
Debenhams' clothing range proved unpopular at Christmas. Picture: Contributed
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DEBENHAMS is expected to side-step issues over tough trading this week by indicating that talks continue over a deal with Mike Ashley’s Sports Direct chain.

Chief executive Michael Sharp is expected to say options for co-operation with Ashley “and other third parties” continue to be explored in a bid to revive the chain’s fortunes. The idea of a tie-up with Sports Direct came about in January when Ashley’s sports fashion retailer bought and sold a 4.6 per cent stake in Debenhams worth £46 million within a few days. This was replaced by a complex financial scheme giving Sports Direct the option to buy 6.6 per cent of the department store chain at a later date.

Ashley, owner of Newcastle United football club, is keen to sell brands such as Dunlop. Slazenger and Kangol at concessions at some of Debenhams’ 158 UK outlets and the department store group’s increasing overseas presence.

One analyst said: “The focus will be on the progress Debenhams has made on the things flagged up at the interim results in April.

“One of the key ones is how to use the group’s space more efficiently. The company has fantastic stores in fantastic locations. But, particularly with the shift to online shopping in the industry, some of the space, particularly on the upper floors and in the basements, is not as productive as Sharp would like. That’s where the tie-ups with third parties come in.”

One area Sharp is thought to be looking at is possible cafe/dining operations run by third parties, similar to the way Tesco has installed Giraffe restaurants in some of its stores.

However, another Debenhams-watcher said: “I think there is scope for some disappointment this week. Investors will be much more interested in any sort of big picture stuff the chief executive has to impart. But often retail bosses duck the question if they do not have a definite deal to announce. That must be a possibility here.”

Debenhams trading update on Friday follows a torrid time for the company. A disastrous Christmas trading performance led to a 24 per cent plunge in half-year profits to £85.2m. The earlier profits warning on New Year’s Eve was rapidly followed by the departure of chief financial officer Simon Herrick.

A key message from Sharp to the City this week will be that the retailer is being far more targeted in its price promotions now, with a previous more scattergun price-cutting strategy seen as being central to its festive woes.

One analyst said: “Quite simply, Debenhams became too promotion-driven. I’m sure they will still do them, but Sharp has made clear he wants them to be fewer and more mixed with full-prices sales.”

Numis Securities has pencilled in a 2 per cent sales decline on a year earlier.

Debenhams is working, meanwhile, to improve its online service for next Christmas by offering next day click-and-collect and a 10pm cut-off for next day delivery. However, it has meant increased spending on automation at the group’s distribution centres, which analysts fear will be another drag on earnings.