- Debenhams sales fell 1.3% over Christmas and the total value of sales decreased 0.8%.
- CEO blames “challenging” market and increased discounting at rivals.
- Department store had to cut prices to keep up and profits this year will suffer as a result.
- Stock opens down 18% on the news.
LONDON – Debenhams issued a profit warning on Thursday, blaming the UK’s “volatile and competitive” retail market.
Shares in the retailer crashed as much as 18% in London after news of the weak festive trading.
The department store said that sales fell over the crucial Christmas trading period. CEO Sergio Bucher blamed increased discounting by rivals and said efforts to compete will hit profit margins this year.
Debenhams said in a trading update that:
- Sales fell 1.3% in the 17 weeks to December 30;
- The total value of sales over that period fell 0.8% over the same time;
- Sales fell 1.8% when you strip out the impact of currency fluctuations in the period;
- UK sales fell 2.3%, while international sales rose by 2.1%;
- Digital sales rose by 9.9%.
Debenhams said: “The early weeks of the quarter were disappointing as the market remained volatile and competitive.”
The retailer “took tactical promotional action to improve our performance,” which it said improved things in the run-up to Christmas, but it admitted: “The first week of post-Christmas Sale was below expectations despite further markdown investment, particularly in the highly seasonal Gift category.”
Debenhams warned investors that margins are set to be 150 basis points below last year as a result of the discounting. The company said it was ramping up cost-saving measures, with an additional £10 million of savings to be made.
Debenhams said pre-tax profit for the year ahead is now likely to be between £55 million and £65 million, potentially below last year’s figure of £59 million. Independent retail analyst Nick Bubb said market consensus ahead of the update was a pre-tax profit of around £83 million for the year.
The department store’s share price crashed as much as 18% at the open in London:
CEO Sergio Bucher said in a statement:
“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.
“Nevertheless, we are seeing positive early signs from the changes we have made as part of our Debenhams Redesigned strategy. 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.”
High Street stalwart Debenhams has been struggling for several years, amid a wider decline in physical retailing in the UK and a rise in online competition. Bucher was brought in from Amazon in May 2016 to try and turn around the company’s fortunes. He has focused on beefing up Debenhams digital operations and focused on selling beauty products.
Debenhams’ Christmas numbers compare unfavourably to Next, which reported better-than-expected numbers on Wednesday.
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