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Debenhams warns on profits as womenswear sales fall

Published 22/06/2016

Debenhams said it remained on track with an overall move to cut down on promotions and special offers
Debenhams said it remained on track with an overall move to cut down on promotions and special offers

Department store chain Debenhams revealed falling sales as it said demand for clothes had been weak amid "uncertain trading conditions".

The group posted a 1.6% fall in like-for-like sales for the 15 weeks to June 11 with currency movements stripped out, and warned that its profit margins would be lower than expected as it slashed prices to shift stock.

Debenhams said it had used "tactical" discounting after seeing weaker sales of womenswear since the new year, but added that it remained on track with an overall move to cut down on promotions and special offers.

Outgoing chief executive Michael Sharp said: "In response to more uncertain trading conditions in this period, particularly in clothing, we have focused on managing stock and margins and generating cash."

The sales fall marks a sharp reversal of the 2.4% rise seen in the previous six months and follows a difficult spring for high street clothing shops, which resorted to discounting after a cold early spring weather hit womenswear sales.

Shares in Debenhams dropped 5% after the trading update, with some analysts trimming their full-year profits expectations despite the chain saying it was on track to meet forecasts.

Mr Sharp - who is stepping down on Friday after nearly five years at the helm - said the group was "holding its own" in a difficult wider clothing market, which was more than 4% lower in its third quarter.

He said as well as the weather hit, trading has been impacted by uncertainty ahead of the EU referendum, as well as the timing of Easter, Mother's Day and Father's Day.

The collapse of BHS is also thought to have been unhelpful to the group, although Mr Sharp said there was little cross-over between BHS and Debenhams customers.

He added: "It's very unfortunate what's happened at BHS and nobody in retail likes to see another retailer fail and I feel for all the employees at BHS."

Mr Sharp joined rival Next in warning over a change in spending habits, saying shoppers were buying fewer clothes and splashing out more on holidays, new cars and eating out.

The group is looking to tap into the growing eating-out market by rolling out more food and drink concessions, such as Costa Coffee and Patisserie Valerie.

It wants to add another 30 food offers by the autumn, with plans for around 40% of its stores to have a new food concession by Christmas.

Debenhams said its international arm - including Magasin du Nord in Denmark - saw a rise in constant currency sales in the third quarter, although it added that trading was mixed.

Incoming boss Sergio Bucher will have a task on his hands to reinvigorate clothing sales in a difficult market.

The Amazon fashion chief joins in October after three years acting as vice president of the internet titan's burgeoning clothing arm in Europe.

Debenhams is looking to reduce its reliance on clothing, boosting its non-food offering, while also driving mobile sales.

It said online sales grew 7% in its third quarter, with mobile accounting for half of all internet orders in the UK and click and collect up 19% year on year.

David Stoddart, analyst at Edison Investment Research, said: "Incoming chief executive Sergio Bucher will have to address the structural challenges facing Debenhams, the scale of which were hard to identify in the third quarter because of that perennial problem, the great British weather."

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