Good morning!

Debenhams (LON:DEB) has put out an updated today. Not a small cap, but as regulars know, I keep a close eye on the retailing sector, as it's my sector specialism. It performed very well over the key Xmas season, but has now slipped back - reporting LFL sales down slightly, at -0.2% for the last 15 weeks. Sales are however still up over the last 41 weeks, at +0.7%.

The big problem retailers have, is that costs are relentlessly rising, in particular the cumulative impact of several years' rises in Living Wage will hurt. I suspect that the Government might be forced into deferring the increase in Living Wage at some point between now and 2020. It's just going to hurt businesses too much, especially in the retail, hospitality, and care sectors.

Note that Debenhams reports strong growth in online - up 9.1% over the last 41 weeks. So people are still spending, but a greater proportion is going online.

Costs are rising at just over 2% p.a., so that's the problem - if sales are not rising by a similar, or greater amount, then profit is likely to fall.

Overall though, the update says profit is in line with expectations. Note that Debenhams still has quite a lot of debt, c.£280m.

DEB is not one I currently hold, as I chucked it out in a regular portfolio pruning, a few weeks ago. Today's update doesn't motivate me to buy back in. Although the interesting thing to note with DEB is the scale of their internet sales - it's one of the UK's largest internet retailers actually.


Hornby (LON:HRN)

Share price: 31.8p (up 1.4% today)
No. shares: 55.0m before fundraising + 29.6m new shares = 84.6m
Market cap: £26.9m after fundraising

Results & fundraising - it's good to see that Hornby has managed to secure the equity funding it needed. The discount of 15% isn't anywhere near as bad as I feared. A placing has been agreed at 27p per share.

I'm delighted to see that the company and its broker have also included an open offer for existing shareholders to participate on the same terms. This is absolutely the right thing to do, so that the important issue of pre-emption rights is at least respected in part. So well done to the company & its advisers for…

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