Good morning, it's Paul here.

Please see the article header for the companies whose trading updates I am covering today.

Debenhams (LON:DEB)

Share price: 28.9p (down 18.8% today)
No. shares: 1,227.8m
Market cap: £354.8m

Trading update - the department store group announces trading for the 17 weeks to 30 Dec 2017.

The problem with updates from retailers, is that too much emphasis is put on like-for-like ("LFL") sales. However, there is no consistency in how this measure is calculated - some include refurbished shops (e.g. Moss Bros (LON:MOSB) ) which I think is clearly incorrect. The whole point of refurbishing a shop is to increase sales, so it's not a LFL comparison once it's been refurbished. Other retailers merge retail sales and online sales in their LFL calculations, which muddies the water. Farcically, Mothercare (LON:MTC) even reports customers in-store ordering on one of their tablets as online sales!

For these reasons, I'm increasingly just focusing on forecast profit. After all, that takes into account everything - sales, gross margins, and costs. The guidance given today is as follows;

Looking ahead, should the current competitive and volatile environment continue into H2, FY2018 profit before tax is now likely to be in the range of 55m to 65m

To put this into context, timing-wise, FY2018 is the year to end-Aug 2018. 

Broker updates - I've got several in my inbox this morning. To give a flavour, one has reduced its PBT forecast from £79.0m to £55.4m - a reduction of 30%.

The key thing is to consider that this is based on forecast revenues of almost £3bn. So Debenhams profit margin is wafer thin, at about 1.8%. What that means, is that only a small further deterioration in sales & gross margins could easily tip the company into losses, and possible insolvency (if shareholders refuse to refinance it).

More details from today's RNS;

  • Digital sales are up 9.9%, giving 2 year growth of 22%. So optimists might latch onto the possibility of Debs transforming itself into an eCommerce company with some big stores also acting as warehouses. The new CEO is ex-Amazon, so who knows what might happen in this area?
  • UK LFL sales down 2.6% in the 17 weeks to…

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