Debenhams shares rocked on credit insurance alert
Euler Hermes is among the companies to have withdrawn some cover.
Debenhams shares fell out of fashion on Monday following reports that credit insurers have reduced cover for suppliers to the struggling department store chain.
Credit insurance company Euler Hermes is among those to have pulled some cover, while Atradius and Coface have refused to cover new shipments, according to the Sunday Times.
Shares tumbled nearly 6% to 13.8p on Monday as investors took fright at the disclosure.
The news represents a major headache for Debenhams, which has already issued three profit warnings this year.
Credit insurance protects suppliers against the risks of a customer going bust, between the moment of accepting an order and payment being made.
If the cover is cut or withdrawn by insurers, suppliers tend to demand payment upfront, straining the retailer’s ability to stock stores.
Debenhams continues to be profitable, has a clear strategy in place and is taking decisive actions to strengthen the business
A spokesman for Debenhams said: “Debenhams has a healthy balance sheet and cash position. All the credit insurers continue to provide cover to our suppliers and we maintain a constructive relationship with them.
“It is well-documented that market conditions are challenging, but Debenhams continues to be profitable, has a clear strategy in place and is taking decisive actions to strengthen the business.”
Britain’s retail sector has taken a hammering this year, with several high-profile administrations and store closure programmes hitting the high street.
Firms have been hit by rising costs and falling consumer confidence.
Debenhams suffered a 1.7% drop in like-for-like sales over the 15 weeks to June 16, and said trading was “below plan” in May and early June despite weak comparatives from a year earlier.
The disappointing performance forced the retailer to “reassess” expectations, with full-year pre-tax profits now set to come in between £35 million and £40 million, down from previous estimates of £50.3 million.