Debenhams said sales in the third quarter were hit by a “volatile” retail market, falling demand for clothes and uncertainty created by the EU referendum.
The department store chain said the tough trading backdrop was partly the result of a longer-term shift in spending habits, as consumers choose to spend more money on holidays, new cars and eating out, and less on clothing.
Shares fell almost 5% after Debenhams reported a 0.2% drop in like-for-like sales – excluding sales at stores open for less than a year – in the third quarter ending 11 June.
Michael Sharp, the chief executive of Debenhams, said a number of factors had created a weaker trading backdrop since the beginning of a year.
“You’d have to be living on planet zog not to have seen there has been a period of uncertainty. The timing changes of Easter, Father’s Day and Mother’s Day, a weaker clothing market and clearly the referendum have come together to create an uncertain trading environment.”
He said Debenhams was responding to a broader shift in shopping habits, with people spending more of their disposable income on “experiences”, such as eating out.
“This is why we want to grow our food business. We need to capitalise on that,” he said.
Debenhams said while clothing sales had fallen in recent weeks, sales of swimwear and luggage – and anything else linked with holidays – had risen.
The retailer said it was rolling out its casual dining offer, so that by Christmas 2016 about 40% of Debenhams stores will have a new food offer.
It is opening a third dining option, Italian restaurant Franco Manca, at its Westfield White City store in west London.
Debenhams will also introduce the Claire’s Accessories brand into 15 stores.
The retailer said it expected zero gross margin growth in the full year, after previously guiding growth between zero and 0.5 percentage points.
Profits however are still expected to come in within the range of market forecasts.
Nick Bubb, independent retail analyst, said the third-quarter fall in like-for-like sales was not as sharp as the City expected: “Thanks to good sales of beauty, like-for-like sales are only 0.2% down, which is a relief, and although gross margins have felt some impact from promotional activity in womenswear, overall full-year profits are in line to be within the range of expectations, thanks to good cost control.
“By implication, profits won’t be at the top of the range … so the shares have sagged first thing.”
This week is Sharp’s final week as boss of Debenhams. He announced his decision to leave last autumn after shareholders pushed for a change at the top following a series of poor results and profit warnings.
He will be replaced by Sergio Bucher, the vice-president of Amazon’s European fashion business.
