Debenhams (LSE: DEB) reported a modest start to the second half of its year, with total sales up only 1% in the 16 weeks to 22 June and like-for-like sales (which adjusts for any new store openings) flat.
Management put the blame for the less-than-impressive numbers on unseasonable weather and chose to highlight the 40% growth in online sales — 13% of the company’s sales now come from the online channel — and market share gains in menswear and premium beauty products.
Despite these positives, Debenhams has had to discount its inventory more than expected, and is now calling for gross margins to be flat from a year ago as opposed to the modest improvement expected at the beginning of the year (which for Debenhams is in September).
To counter this, the company has been focusing on cost control on the operations front and looks to be having some success as store costs and back-office costs are expected to be lower than previously thought.
A bit of a mixed bag as Debenhams moves into the latter part of its fiscal year, but it does appear that the retailer is adopting online retail fairly well. This transition will be important in the coming years as retail evolves, but in the meantime the company and investors are hoping to see sales growth pick up as the summer rolls on.
The shares have recovered from their sell-off in early March following a profit warning but currently trade under 10 times forecast earnings, which could appeal to investors that believe the company has what it takes to succeed in the tough, and rapidly changing, retail industry.
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> Nate does not own any share mentioned in this article. The Motley Fool owns shares of Debenhams.
