Debenhams has cheered investors by reporting better than expected full-year results and a good start to the new year ahead of the key Christmas period.
The shares rose by almost five per cent as the UK’s second biggest store group behind John Lewis said chief executive Michael Sharp would step down but not until next year. Reports a month ago had suggested that a group of dissatisfied major shareholders was agitating for a shake-up in the Debenhams board and a change at the top.
One of its biggest backers is Mike Ashley’s Sports Direct, which has an option over 10.5per cent of the shares and concessions in many of its stores. In July Mr Ashley sparked tensions by reportedly saying a Debenhams range was ‘crap’.
Mr Sharp, who has just started his fifth year at the helm, said a five-year stint had “always been my plan and I’m sticking to it”- though it had not previously been made public.
Debenhams, which has 15 stores across Scotland from Dumfries to Inverness, reported an underlying pre-tax profit of £113.5million in the year to August 29. That was up 7.3 percent on 2014 though well down on the previous year’s £139m.
“We have delivered profits in line with market expectations, reflecting further progress against our strategic priorities,” Mr Sharp said. “ We have had an encouraging start to the year, with strong new product launches which have been well received by our customers, and we are in good shape to build on last year's strong performance over peak trading.”
Under his leadership, Debenhams has cut back on promotions, added concessions in under-used store space, grown its online business and expanded internationally.
However, the firm has seen little sales and profit growth in recent years, while its shares, though up a third over the last year, are well down on their November 2012 peak of 124p.
Mr Sharp, 30 years with the group, went on: “I hope being transparent about my intentions will stop recent speculation becoming a distraction, allowing me and the Debenhams team to focus on delivering our strategy and the important Christmas trading period.”
Debenhams said Mr Sharp, who has a 12 month notice period, would help identify his successor, with internal and external candidates considered.
Analysts cited trading director Suzanne Harlow as the leading internal candidate. Nick Bubb, independent retail analyst, said chairman Nigel Northridge had said the board was confident it had a clear and effective strategy. “If he means what he says then Harlow will be in with a good chance, but if Debenhams decide to pursue a different strategy then an outsider will probably be brought in.”
Richard Chamberlain, analyst at RBC Europe, said the transition looked as though it would be a smooth one. He said the Debenhams was “an inexpensive share with renewed operational momentum”.
Mr Sharp said: “We are increasingly confident in the direction of the business and as a result we will accelerate our new initiatives, such as the roll-out of our successful space optimisation trials and new international growth opportunities.
“We have clear priorities for the uses of cash and our continued strong cash generation has enabled us to improve our leverage target and to adopt a progressive dividend policy as future earnings increase.”
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