Debenhams Turns a Warehouse Into a Debt Escape

Debenhams Turns a Warehouse Into a Debt Escape

Mark Nichols

Thu, September 10, 2026 at 5:11 PM GMT+3 4 min read

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THE GIST

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Debenhams Group has found a particularly effective way to lighten its balance sheet, selling the automation assets at its Sheffield distribution center and handing the lease to Primark for £90 million ($122 million).

The deal should leave net debt at a negligible level by February 2027, while lower interest, lease and depreciation costs give the turnaround another useful financial boost.

WHAT HAPPENED

Shares in Debenhams Group, formerly known as Boohoo Group, jumped around 8% after it agreed to sell the automation in its Sheffield distribution center and reassign the associated lease to Primark Stores for £90 million in cash.

The company received £76.5 million when the transaction completed, with the remaining £13.5 million due once it provides vacant possession early next year. All of that cash will strengthen a balance sheet that had still carried £93.2 million of net debt at the end of February.

Management now expects net debt to be negligible by the end of the current financial year in February 2027, an improvement from its previous target of getting leverage below one times adjusted EBITDA.

There is more to the deal than simply paying down borrowings, because Debenhams expects annual depreciation to fall by around £12 million, interest expense to decline by at least £10 million and cash lease costs to drop by roughly £4 million.

The group is simultaneously shifting fulfillment of the stocked goods it still carries to a global third-party logistics provider, allowing it to keep serving customers while removing another chunk of fixed infrastructure from its own balance sheet.

That fits the broader strategy of turning Debenhams into what management describes as a capital-light, stock-light and cost-light marketplace business, with the ambition for marketplace activity eventually to account for well over half of gross merchandise value.

The operational backdrop is also improving. Group GMV returned to growth in the first quarter, rising 0.5%, before accelerating further in the second quarter, while May alone had already delivered growth of roughly 8%.

Last year's numbers showed why this transition matters. Adjusted EBITDA rose 35% to £53.3 million even as the group continued shrinking its traditional retail footprint, with every brand profitable on an adjusted EBITDA basis and Debenhams itself generating £34.8 million.

WHY IT MATTERS

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Boohoo spent years building the sort of infrastructure an online fashion retailer was supposed to want: warehouses, automation, inventory and its own distribution capacity. Debenhams Group is now making the opposite bet, arguing that the better business is one that owns the customer relationship and marketplace while somebody else owns more of the physical machinery.

That changes the economics significantly because marketplaces can earn commissions and service revenues without tying up the same amount of cash in stock, warehouses and fulfillment equipment. If Debenhams can keep growing GMV while stripping out fixed assets, additional sales should require substantially less capital than they did under the old Boohoo model.

The Sheffield transaction is therefore useful in two ways. It immediately attacks the debt pile, which reduces interest costs, while also making the company structurally less capital intensive and removing lease obligations that would otherwise keep consuming cash.

The timing is important because debt has been one of the biggest reasons investors have remained skeptical about the turnaround. Net debt increased to £93.2 million in the year to February even though adjusted EBITDA improved, leaving management under pressure to show that better trading could eventually translate into genuine free cash flow.

A near-zero net debt position would materially change that conversation. Instead of cash disappearing into interest and restructuring, more of it could eventually be reinvested in the platform, used for shareholder returns or simply retained to make the group less vulnerable when fashion demand weakens.

There is also an interesting symmetry to the buyer. Primark wants the Sheffield facility because it is preparing to launch home delivery in Great Britain, while Debenhams wants rid of it because it is moving further toward a marketplace model where owning large distribution assets makes less strategic sense.

One retailer is finally building more e-commerce infrastructure while the other is deliberately dismantling it, and both believe they are moving toward the more profitable model.

WHAT'S NEXT

The immediate focus moves to Debenhams Group's half-year trading update on September 17, when investors should get a clearer picture of how much faster GMV grew during the second quarter and whether margin improvement has continued alongside it.

The bigger test is whether the marketplace transition can produce sustainable free cash flow once the warehouse sale, lower interest expense and reduced capital spending flow through the numbers.

If Debenhams can arrive at February with almost no net debt while keeping GMV moving higher, the old Boohoo investment story will have changed considerably. The company is no longer trying to prove that owning more stock and infrastructure creates scale, but that owning less of both can create a better business.