Boohoo Owner Debenhams Narrows Losses Amid Turnaround Efforts

Debenhams, owned by Boohoo, has narrowed its pre-tax losses to £108.3 million for the year ended February 28, a decrease from £326.4 million in the previous year. Chief executive Dan Finley described the period as "a year of significant and successful transformation," attributing the progress to "decisive action" to revive the business. Boohoo acquired the department store chain Debenhams out of administration in 2021, shifting its focus to an online-only model.

Finley aims to leverage the Debenhams brand, which features actress Kim Cattrall in a fashion campaign, as a model for transforming the wider group's performance. The group's brands also include Gen Z-focused online retailers Boohoo and PrettyLittleThing. Progress has been attributed to operational changes, including consolidating all operations to a single warehouse site in Sheffield and subleasing its U.S. facility, alongside reducing "onerous costs."

The company is transitioning towards a marketplace model, where third-party brands sell through its platforms for a fee, rather than holding substantial inventory. To address high return rates, Boohoo and PrettyLittleThing are implementing a small charge for returns to discourage excessive sending back of items. The group reported its return rate improved to 28.2% from 29.8% the prior year. Investments in "product fit and design" for Debenhams' own-brand fashion, Karen Millen, and Boohoo women's clothing also aim to mitigate this issue.

Finley indicated that the turnaround is proceeding quickly, with momentum building in their multi-year strategy since the start of the current financial year in March. However, shares saw a 3% decline as sales continued to fall, dropping 24.7% to £917 million. The company stated this revenue decrease reflects the shift to the marketplace model, where only commission income is recognized, not the full transaction value.

The group's youth brands are facing increased competition from ultra-cheap Chinese retailer Shein and resale platform Vinted. Peel Hunt reiterated a "reiterated a hold rating and raised its target price from 20p to 25p," noting that the Debenhams recovery is "gaining traction, underpinned by a significant cost transformation and a stable balance sheet."

Finley also reported a 0.5% increase in sales in the first quarter of the current financial year. Dan Coatsworth, head of markets at AJ Bell, commented that Debenhams is still incurring losses and investors are now seeking profitability. He highlighted the need for the business to accelerate revenue growth while facing stiff competition from other retailers adopting similar marketplace strategies. High Street retailers like Next and Marks & Spencer have also expanded their offerings with third-party brands. Coatsworth added that Debenhams must also contend with the growing popularity of platforms like Vinted, which appeal to bargain-seeking consumers who might have previously shopped with fast fashion brands. He concluded that while stabilizing the business is a significant achievement, achieving profitable growth will be challenging. IMAGE1: Star power: Sex and the City actress Kim Cattrall fronts a fashion campaign for Debenhams