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Debenhams : Progress on product and pricing, but condition of stores remains a concern

From: <JPMorgan.Alerts(*)jpmorgan.com>
Date: Thu, 25 Oct 2007 05:41:56 -0400 (EDT)
To: Philippe(*)testcompany.com 

 

	 
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					 Dear Philippe Van Loock, 
					 
				

				
 
					
						JPMorgan Research has published the following on MorganMarkets. Please click on the indicated URL to access your document or open the attachment at the bottom of this email.
					
					 
				

				
 
					 
				


				
  
 
     
  

  
 
    Headline: 
      
       
    Debenhams : Progress on product and pricing, but condition of stores remains a concern 
		
    
     
  

  
 
    Abstract: 
      
       
         	 
    	

                  	

			
  • Following a more detailed review of Debenhams’ FY07 results, we have reduced our PBT forecast for FY08 by 2% (higher depreciation) but owing to a reduced share count, we have reduced our EPS forecast by 1% for FY08 and increased it by 1% for FY09. Our 6-month DCF-based price target moves from 98p to 100p.
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  • Debenhams has clearly got off to a better start in the current financial year (LFL sales +2%) and has made some changes to its product offer and pricing to improve the top line. However there have been several false dawns in the past and Debenhams appears to have benefited from more favourable weather and some pent up demand. Debenhams should benefit from its higher proportion of gift merchandise in the less discretionary Christmas period, however for FY08 we expect LFL sales to slow to 0% on account of a worsening UK consumer environment.
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  • Our gross margin forecast of +20bp improvement in FY08 remains unchanged. This should be supported by currency gains, stronger clothing sales, a higher own bought % and tighter inventory control, offset by 100bp of attrition from price cuts.
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  • Debenhams’ cal.08e P/E of 9x is hardly demanding, however given differences in capital structure we think an EV based valuation is more appropriate. Debenhams' 08e normalized EV/FCF ratio of 18.8x is above the sector average (16.5x) and that of our preferred stock in UK apparel Next (13.4x) whose trading statement (7 Nov) should be the next positive catalyst for the stock.
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    Link: 
      
       
     
      https://mm.jpmorgan.com/jsp/email_frame.jsp?fullDocId=GPS-157510-0
    
     
  
    
  
     
    Author(s): 
       
     
    	
    
                  	
    
			Richard B Chamberlain
			
    
                  	
    
			Simon Irwin
			
    
                  	
    
			Naomie E Schapira
			
    
                  
       
       		
     
  
    

     
    Date: 
       
    2007/10/24 15:02:57 BST
    
     
  
    

  
     
    
    		
       
  
    


				
     
					 
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