Debenhams is set for failure with its “sprawling, expensive and poorly located” store base, says SWMC fund manager Jamie Carter.
The UK retailer this morning revealed its pre-tax profits had slid 7 per cent to £105.8m, led by poor clothing sales. Revenue was flat at £2.3bn.
Analysts had been expecting sales of £2.9bn and pre-tax profits of £113m.
Carter, partner and manager of the SWMC Small Cap European fund, which holds the stock in his short book, says “Mediterranean-esque” weather had not helped winter clothing sales.
“We believe this company may well need to raise capital early next year if sales fall by 5 per cent due to the rent bill on their sprawling, expensive and poorly located store base.
“Gross margins will also suffer meaningfully next year following the drop in sterling.”
In the last five months, Carter has reduced net long exposure to industrials from 23 per cent to 16.2 per cent. However, he has almost doubled financials from 9.1 per cent to 18 per cent and technology from 7.9 per cent to 14.2 per cent.