Shares in Debenhams (LON:DEBS) rallied after the online fashion and beauty retailer reported a return to pre-tax profit for the first time in five years. With the group’s turnaround in full swing, CEO Dan Finley is targeting pre-tax profits north of £100 million in the medium term.
‘The turnaround continues at pace,’ said Finley. ‘I am pleased to report that net debt is expected to be negligible at year-end. This is significantly ahead of our original guidance provided at the start of the year. I see material opportunities ahead and we are fully focused on maximising them.’
Return to pre-tax profit
The boohoo-to-Karen Millen brands owner swung from losses of £17.9 million to statutory pre-tax profits of £28.3 million in the six months to August. Rising sales, lower product returns and expanding margins drove this £46.2 million improvement.
In addition, the result included a £40 million non-cash gain linked to the sublease of Debenhams’ US distribution centre. Excluding lease-related credits, underlying pre-tax losses narrowed from roughly £52 million to around £12 million.
| £ million | H1 27 | H1 26 | Change |
| GMV pre returns | 863.8 | 848.6 | +1.8% |
| Statutory pre-tax profit | 28.3 | 17.9 | n/m |
| Net debt | (98.5) | (111.1) | 11.4% |
Source: Debenhams Group, H1 results
GMV (gross merchandise value) before returns increased 2% to £863.8 million in H1. And crucially, growth accelerated through the half.
The Debenhams brand grew sales 14.1% to £363.8 million. Meanwhile, PLT (PrettyLittleThing), boohoo and Karen Millen have all returned to growth.
Growth accelerates
Despite the tough consumer backdrop, Debenhams said September trading ‘continued to be good, with the group experiencing further accelerated growth’.
Furthermore, the AIM-listed company maintained FY27 guidance for GMV growth and adjusted EBITDA of no less than £59 million. That would represent double-digit year-on-year EBITDA growth. And Debenhams also stuck to its £100 million fixed cost savings target.
We aren’t the biggest fans of the fast fashion industry. Consumer demand is fickle and brands can quickly fall out of favour with youthful fashionistas. However, Finley is delivering quite the turnaround at Debenhams. And with the business moving from recovery to growth, we think the share price rally still has legs.
Debenhams reports earnings surge as turnaround gathers pace
Core brands are in back growth, the cost base has been rightsized, margins are improving and the balance sheet has been strengthened.
Net debt has significantly reduced and is expected to be negligible by year-end. This follows the sales of a Sheffield distribution centre to Primark for £90 million and the Nasty Gal label to WSG brands for £11.9 million.
