Debenhams Share Discussion Threads

[simon templar qc] 24/1/2017 13:27

Fair comment.

However, a department store needs to attract all markets the best they can otherwise you they will lose out to niche retailers whether it be online or in stores.

The market is changing and sores have to adapt.

I am not saying Debenhams is finished as yet it all depends how they adapt to change.

As a matter of fact JL has a massive pension deficit and more borrowings than Debenhams and both could kill the business model.

My take is Marks better placed because of its Food, Debenhams and JL more at risk.

Its a changing market will amazon upping the stakes and Sainsburys buying Argos.

Debenhams have the right man on board but these things tend to take time.

[terminated] 24/1/2017 12:45

With all fairness I don't think the people who shop at Debenhams and house of fraser are the kind that would desert for the likes of boohoo and most other cheaper retailers. Many (not me) like to buy into an image. Most people who shop at Debenhams are in higher income brackets and not as affected by inflation and the like. I doubt BMW and audi sales are affected to much by the fall in sterling.

[simon templar qc] 24/1/2017 10:45

John Lewis Partnership weekly sales figures mixed, due to sale continuing...



I sense clothing slowing down. Interesting watching Dispatches last night, cheap clothes being made in the UK at under the minimum wage at about £3 per hour!

The culprits seem to be the suppliers subcontracting for New Look, Boohoo and a number of other high St names.

I don't think they will stop it as another manufacturer will get round the situation.

These online companies are roaring away like Boohoo and Superdry and will be able to undercut traditional high St stores. I think that is why Next shares have slumped.

edit: Bear in mind JL sales have to take account of 5% more shelf space due to more stores. Taking all that into account sales seems to be falling on a like to like.

My prediction was right on share price rise on trading statement and fall thereafter.

[isis] 23/1/2017 12:55

Sterling is being bashed because of Brexit and traders taking advantage. Carney and the Crew want weak sterling too for exports.

I expect it to recover as Brexit unfolds and the nightmare scenarios don't happen. Reminds of the Millenium Bug and we all what a load of hype that was!

The Euro is overvalued and is part of the problem.

[simon templar qc] 22/1/2017 13:23

wllmerk-sorry for the negative stance but I am not alone on my outlook, many have been saying debt is too high all around the world and the way the financiers are bashing sterling is for a reason.

[edmondj] 22/1/2017 08:23

Yes but there is liable to be a medium-term cost, also to the Tories if opportunities don't materialise enough to justify the pain.

[wllmherk] 22/1/2017 06:59

you are a cheery soul Simon, you could take a different perspective in so far Brexit may provide a fantastic opportunity to do trade deals with other countries, reduce taxation, reduce EU red tape, spend EU contributions on UK infrastructure, cut foreign aid, improve our security etc etc etc.

Where I do agree is that the stock market is due a correction.


wllm

[simon templar qc] 21/1/2017 18:57

UK consumers in cloud cuckoo land at the moment post Brexit imo.

Too much debt around with low interest rates and low inflation. As inflation rises people will be a lot worse off. Soros has just warned, on how collapse in sterling will reign in spending and I agree.

Too many retailers out there, sooner or later another large retailer will hit the wall.

Bricks and mortar retailers at risk imo.

Business rates going up tin hat time later this year and into 2018, I also think stok market will be hit.

[simon templar qc] 20/1/2017 20:05

Interesting article here which breaks down the retail sales figures...



The latest figures seem to be at odds with a number of trading figures by most the supermarkets and larger stores of which also include fashion.

There could be a number of reasons for any discrepancy. Black-Friday, online sales, bear in mind a small fashion outlet will not do online.

However the writer points to a last splash by the consumer and it equates with my view. Consumers know things will go up this year due to low pound and they will have less money in their pocket.

I appreciate Debs will fare better on currencies than JL but nevertheless consumers will have less money in their pockets.

Conclusion-I see no reason to alter my stance here I think its a wait and see at the moment and still a value trap.

[terminated] 20/1/2017 18:57

Debenhams more aimed at the ladies IMO. I have to say the one where I live is always lively, it serves a purpose and people like to pop in to kill some time. In a lot of instances (like electronics etc) you might pop into a shop (i.e. Currys) and check out the product then order it online more cheaply. However, on expensive fashion items this is rarely possible as banded goods tend to sell at similar price, in fact some items sold in Debenhams are exclusive designs for them. So you might be able to order a dress on Amazon but not necessarily the one you copped your eyes on whilst in the store browsing and if you can find it on another fashion site it's likely to be a similar price. This is obviously not the case with pots and pans etc...

[simon templar qc] 20/1/2017 12:18

Teat sales abysmal. Forecast was for the reverse.

[thevaluehunter] 20/1/2017 12:07

Classic BBC reporting: on the news that retail sales were up 4.3% in December 2016 compared to last year - Headline: "UK retail sales fall sharply in December"

[essentialinvestor] 20/1/2017 11:47

Back in the day DEB was my default shop for bedding, kitchen ware, birthday gifts,
all bought in store.
Now it's invaribly Amazon or somewhere else online. Have only ordered twice
from Debenhams online.

Never bought any clothing from Debenhams so perhaps not a typical customer.

[thevaluehunter] 20/1/2017 11:40

Not sure why MasterInvestor talks about "sterling’s value versus the dollar has fallen to levels not seen in over a decade, things could get worse before they get better." as a challenge for a debenhams because they are fully hedged at 1.50 until summer 2018. From the last results: "Debenhams adopts a rolling hedging strategy, typically hedging 12-18 months ahead. We are fully hedged for FY2017 at an average rate of around $1.50 or c5% lower than FY2016. We are partially hedged for FY2018 and therefore the most recent fall in the value of sterling will not take full effect until spring/summer 2018." I reckon the current value of this hedge could be well over a hundred mil.

[simon templar qc] 19/1/2017 21:08

Challenging outlook from MasterInvestor who thinks Debenhams could be ditched.



The writer has a similar view to my outlook. He hasn't mentioned upward rent views neither increase in business rates and rise in minimum wage, which will inevitably increase costs and reduce margins.

He is avoiding I say a value trap.

[essentialinvestor] 19/1/2017 13:38

Simon, yes appreciate you're cautious on DEB!.
My use of the word was ambiguous, meant someone rather than you personally.

[simon templar qc] 17/1/2017 18:42

EI

I am not bullish I am cautious/wait and see.

The bricks and mortar and onerous leases the biggest problem. They are relying on SB

[essentialinvestor] 17/1/2017 18:40

Simon, that was my point- group profitability significantly lower than
5/6 years ago and still DEB continue with physical store expansion,
with the already hefty legacy lease liabilities. Plus the maintenance CAPEX
requirements.

What happens when the next consumer downturn hits?.


If you are bullish DEB, weaker companies going to the wall as with BHS,
may be helpful and create some opportunity.

[simon templar qc] 17/1/2017 18:23

Also JL has to manage its pensions! They have a large deficit to manage! All three are in similar ball park they could all survive it all depends how skilled they operate from here.

Sergio Butcher could make a lot of difference.

[harry_david] 17/1/2017 18:11

Simon, these are good points and go back to when the business was being raped by private equity. They have done extraordinarily well to have managed these leases since. The leases will not be escalating in today's market so the skill is to now utilise waste space.
Fortunately this year they have a £50 million currency head start against Marks and John Lewis

[simon templar qc] 17/1/2017 17:33

Here we have it guys Debenhams did a sale and lease back in February 2005



This one example is the spanner in the works:



"The stores are being leased to Debenhams for 30 years from March 2004, and 35 years in the case of Oxford Street and Manchester, at a total rent starting at �27.9m a year. Debenhams will have an option to renew at the end of the lease for a further 25 years.
Stephen Hester, British Land chief executive, said: "This well let portfolio has guaranteed annual uplifts throughout a minimum term of 30 years, and potential for additional rental growth, plus an initial income return of 5.6 per cent.
"We believe the 23 stores, leased to one of the leading department store operators in the UK, provide an excellent addition to British Land's retail portfolio. The secure income growth is expected to be increasingly valuable with various asset management opportunities on top and in a sector well known to us."

BL income return far outweighs growth in retail and dismal almost zero interest rates!!!

edit: I suspect there are quite a lot of other or onerous leases apart from the above. Sale and lease back can generate cash but does have its draw backs in a slow growth economy.

A business has to be able to generate enough cash without selling its freeholds!!!!

Finally seems some stores have a annual uplift...""This well let portfolio has guaranteed annual uplifts throughout a minimum term of 30 years,"

[simon templar qc] 17/1/2017 14:14

Example of upward only rent review...



Leeds Debenhams building sold for £38m
22 Aug 2014 Yorkshire

"The Debenhams building on Briggate in Leeds city centre has been sold in an off-market transaction for £38m.
Orchard Street Investment Management has acquired 115-126 Briggate on behalf of St James's Place. The property is let in its entirety to department store chain Debenhams on a 35-year lease with an unexpired term of 19 years.
Tom Chadwick at Orchard Street, said: "This prime property is situated in one of the most sought after locations in Leeds and is at the centre of an established shopping hub which should strengthen as the retail offering continues to improve."
The property, which has a gross internal area of 111,824 sq ft set out over six floors, produces a current passing rent of £2.24m per year, subject to upward only rent reviews every five years."

edit:

Unexpired term 19 years from 2014 which suggests an upward rent review in the next 2 yearst.

looks to me like there will be quite a lot of upward rent reviews within the next few years, I think Debenhams may have done a sale and lease back a while back.

[simon templar qc] 17/1/2017 12:34

Sooner or later there has to be some consolidation. Thinks we are in some agreement.

Marks is in a similar position too large stores and trying to shift lower fashion with more food.

They are both trying to move with the market.

[essentialinvestor] 17/1/2017 12:08

ST, you have called this very well, think I mentioned previously.


If you are an optimist may be some bid possibiity with FX,
that is highly speculative.