Shares in high-street retailer Debenhams (LSE: DEB) were in free-fall in early trading this morning, shedding 7.7%, as its Christmas trading update fell short of investors expectations.
Record trading in the week leading up to Christmas saw Debenhams grow like-for-like sales by 4.9% over the Christmas period. Investors had feared that Black Friday promotions could impact Christmas sales, but the retailer seems to have avoided any cannibalisation of sales.
However, despite solid progress, the market was unimpressed. The upset was likely caused by margin expansion, which the company said would come it at the low end of its 10-40bps guidance after a strong performance from lower-margin categories such as beauty and concession brands.
Online growth also slowed to a still-impressive 28.9% due to the companys strategy to sell at a discount less often across the business. This seemed a poor excuse, considering that more full-price sales should have contributed to stronger margin growth overall.
CEO Michael Sharp said he was happy with the results, highlighting the transformational progress made by the company:
I am pleased with our performance in the critical Christmas trading weeks, driven by our strength in a diverse range of product categories and a strong marketing campaign focused on gifting We now have a competitive online proposition with next day delivery to home and next day click and collect, which customers took full advantage of and which performed well over Christmas.
Debenhams recovery seems to be taking hold, if at a slightly slower pace than the market expected.
Its focus on less discounting, a more competitive online offering and the addition of Costa Coffee, Sports Direct, Mothercare and Monsoon to larger stores to attract custom has seen sales and margins heading in the right direction.
Overall, these results reveal a massive improvement in business performance when compared to last years terrible Christmas season. The company demanded discounts from suppliers only eight days before Christmas and a profit warning on New Years Eve 2013 saw finance director Simon Herrick leave the company.
The share price has barely recovered three pence a year later.
Trading on a PE of just under 10 and yielding nearly 5%, Debenhams could outperform if its recovery strengthens, but headwinds facing the highstreet means this is no certain thing.
There are certainly stronger companies out there with some serious momentum behind them, and our analysts have tracked down some of the best for our exclusive investment dossier.
In fact, these companies are so solid we believe they could send your retirement portfolio returns skywards. One even yields a market-beating 5.6%.
Click here to receive your free copy of Five Shares To Retire On – it is completely free and comes with no further obligation.
Get FREE Issues of The Motley Fool Collective
Get straightforward advice on whats really happening with the stock markets, direct to your inbox. Help yourself with our FREE email newsletter designed to help you protect and grow your portfolio wealth.
By providing your email address, you consent to receiving further information on our goods and services and those of our business partners. To opt-out of receiving this information click here. All information provided is governed by our Privacy Statement.
Zach Coffell has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.