Debenhams shares have plunged 20% after the store chain issued an unexpected profits warning after poor festive sales and a failure to entice shoppers to its post-Christmas sale.
The department store struck a gloomy tone as it brought forward its Christmas trading update by a week. It also warned that the current UK trading environment was “volatile and highly competitive”.
Debenhams said profits for the full year were now expected to be between £55m and £65m – sharply below City expectations of £83m. The share price plunge wiped almost £70m off the market value of the Debenhams business. The chain, which is now planning to bring forward job cuts, is now valued at £365m.
“We took tactical promotional action to improve our performance which resulted in a stronger six-week Christmas period against tough comparatives … However, the first week of post-Christmas sale was below expectations despite further markdown investment, particularly in the highly seasonal gift category,” the retailer said.
Like-for-like sales in the UK, which strip out the impact of sales at stores open for less than a year, fell 2.6% in the 17 weeks to 30 December. Like-for-like sales overall were down 1.8%.
Sergio Bucher, Debenhams’ chief executive, said the company was accelerating plans to cut jobs by simplifying its management structures. It will also be stepping up business rates reviews as part of aims to save an extra £10m in costs this year.
The company is already closing two stores and considering shuttering up to eight more as part of Bucher’s recovery plan announced earlier this year. The company said it continued to keep its estate under review.
Bucher said he had faith in his turnaround plan and remained “optimistic about the future of Debenhams”, saying the company had increased sales of beauty and food but had failed to make its gifts innovative or premium enough to fend off heavy competition and discounting.
He said Debenhams had held market share in clothing but the market had shrunk amid a warm start to the season, which had led to more discounting than last year.
“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,” Bucher said.
“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.”
The gloomy Christmas trading update from Debenhams contrasts with an update on Wednesday from Next, which revealed a better than expected Christmas, as strong online sales more than offset grim trading at its high street stores.
Analysts were divided over which retailer provided the better indicator of conditions on the high street.
But Richard Chamberlain, an analyst at RBC Capital Markets, said Debenhams’ problems were not only the result of challenging market conditions and a tough post-Christmas sale. “In addition we think Debenhams has suffered from having a sub-optimal clothing and gifts offer and from being overly reliant on promotional activity to drive footfall and online spend,” he said.
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