Debenhams shares tumble after profits alert
The retailer said UK like-for-like sales tumbled 2.6% in the 17 weeks to December 30 in “competitive and volatile” trading.
Department store chain Debenhams has seen its shares slump by as much as 24% after warning over profits after it was forced to slash prices to boost flagging festive sales.
In a trading update brought forward from next week, the retailer said UK like-for-like sales tumbled 2.6% in the 17 weeks to December 30, with overall group sales down 1.8%.
It said “tactical promotional action” helped group sales improve over the six-week Christmas period, rising by 1.2% on a like-for-like basis, but it saw worse-than-expected trading in the first week of the post-Christmas sales.
Debenhams warned that “should the current competitive and volatile environment continue” into the second half, full-year profit before tax is likely to be in the range of £55 million to £65 million.
Analysts had pencilled in annual profits of around £83 million.
Shares in Debenhams slumped nearly a quarter at one stage before settling around 16% lower, sparking falls among retail rivals.
Marks & Spencer, which updates on its festive trading next week, dropped 2% in the FTSE 100, while Burberry and Next also fell 2%.
The profit alert comes just a day after Next in contrast upgraded its profit outlook after better-than-expected trading in its Directory and online arm.
Debenhams said it was ramping up cost savings, with around another £10 million earmarked for this financial year and £20 million extra annually under a reorganisation being led by chief executive Sergio Bucher.
Bosses at the group insisted there were no more stores being earmarked for closure, but said the shop estate remains under review.
Mr Bucher, who took over a year ago, revealed plans in April to close 11 warehouses and put up to 10 stores under review, in a move affecting at least 220 jobs.
This came after profits for the year to last September slumped 44% to £59 million.
On announcing the latest trading woes, Mr Bucher said: “The market has been challenging and particularly promotional in some of our key seasonal categories and we have responded in order to remain competitive for our customers, which has impacted our profit performance.”
But he said the group was seeing “positive early signs” from his turnaround.
“The market dynamics we have seen have reinforced our view that we need to move even faster to implement the cultural and organisational changes needed to ensure Debenhams is in the best possible shape for today’s fast-changing retail environment,” he added.
Debenhams plans to accelerate cost cutting in areas such as sourcing, rent and rates and generally throughout its shops.
On the impact on jobs of the restructure, Mr Bucher said: “There will be some jobs that will go – we’ll be creating jobs as well.
“That’s what happens when you reorganise teams.”
Debenhams said it was forced to cut prices to keep up with competitors in a difficult run-up to Christmas, with the early weeks of the festive quarter particularly “disappointing”.
Mr Bucher said the group saw strong online sales and held its share in a declining clothing market, but suffered in the gifting category, failing to alter promotions after strong gift sales last Christmas.
“We haven’t moved on fast enough,” Mr Bucher admitted.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Strong growth for its digital offering has failed to save Debenhams from a miserable end to the year.
“Debenhams has been forced to cut prices to persuade shoppers to part with their cash, and as a result margins have been squeezed, profits have been significantly downgraded, and the share price has taken a massive hit.”