UK’s Debenhams warns on profits after poor Christmas

LONDON: Debenhams, Britain’s second-largest department store by sales, warned profits would fall well short of market expectations after a hoped-for surge in last minute Christmas shopping failed to materialize, sending its shares slumping.
In an unscheduled trading statement, the retailer became the first to update the market on how it had fared over the key Christmas trading period, saying demand had been so poor it would now have to cut prices even further to clear stock, wiping 140 million pounds ($231.36 million) off its market value.
Bad weather in the run up to Christmas and a still cautious approach by many consumers to spending has sparked fears that retailers will struggle over the end of year trading, prompting many to slash prices to try and support sales.
With a weaker online offering and two strong competitors in John Lewis and Next, Debenhams has struggled to tap into the tentative economic recovery in Britain. The firm also said on Tuesday it would cease its share buyback program.
“It looks like they’ve obviously had a very challenging Christmas period,” Numis analyst Andrew Wade said. “While this is obviously a very disappointing update we don’t necessarily expect this to be repeated across the retail space.”
Shares in Debenhams, which started the day down 27 percent on a year ago, were down 14 percent to 72 pence at 1102 GMT.
Debenhams said it now expects profit before tax for the first half of its fiscal year to be in the region of 85 million pounds, down from analyst forecasts of 112 million pounds, according to Thomson Reuters data.
In the 17 weeks to December 28, it reported like-for-like sales of 0.1 percent growth as demand for gifts, beauty and home products just offset the weak demand for clothing. The deep discounting is likely to knock gross margin for the first half by between 80 and 100 basis points, it said.
“As has been widely commented on in the media, the market was highly promotional in the run up to Christmas and we responded to these conditions to ensure our offer was competitive,” Debenhams CEO Michael Sharp said.
“However, this extremely difficult environment has inevitably had an impact on both our sales and profitability. Looking forward, I expect conditions to remain highly competitive as we enter 2014.”
Shares in rival Marks & Spencer, which made the rare move to slash 30 percent off all clothing in the run up to Christmas, prompting fears it too has endured tough trading, were down 2.5 percent.
Shares in Next, which is expected to have enjoyed a good Christmas boosted by its Directory Internet and catalogue business, were down 0.3 percent, while John Lewis, Britain’s biggest department stores group, is owned by its employees and unlisted.