Debenhams issues new profit alert as trading remains tough

0
12


Debenhams has issued a fresh profit warning, admitting sales are falling short of already lowered expectations amid the crisis facing the high street.

Shares – already 43% down in the year to date – sank by 19% when the market opened as investors digested the downbeat update.

The department store chain blamed “increased competitor discounting and weakness in key markets” for “below plan” trading in May and early June, despite weak comparisons with the same period in 2017.

To help offset the troubled trading, Debenhams said it had accelerated its cost-cutting plans so further efficiencies could be identified in future, but gave no further details.

Nevertheless, it said pre-tax profits for the year to 2 September were now expected to come in between £35m-£40m – down from a previously revised forecast of £50.3m.

Debenhams reported a 2.1% increase in group like-for-like sales during the 41 weeks to 16 June, having already issued its first profit warning after poor Christmas trading – which it blamed on bad weather.

People carry shopping bags along Oxford Street on December 24, 2016 in London, England. Christmas shoppers hunt for last minute presents in central London on Christmas Eve Debenhams issues new profit alert as trading remains tough Debenhams issues new profit alert as trading remains tough skynews christmas shopping 4163581
Image:
Debenhams, like many rivals, had a tough Christmas and has continued to be hampered by weak demand

It later revealed an 85% slump in half-year profits, with the so-called Beast from the East and restructuring costs taking their toll on its bottom line in the six months to March.

A string of big name retailers have either sought help or gone to the wall since.

Toys R Us UK and Maplin were the most high profile early casualties – with Mothercare, Carpetright, Carphone Warehouse and Homebase among others feeling the strain.

Earlier this month one key rival, House of Fraser, announced a rescue plan involving the closure of dozens of stores.

House of Fraser Debenhams issues new profit alert as trading remains tough Debenhams issues new profit alert as trading remains tough skynews house of fraser shop front 4330116
Image:
House of Fraser is seeking creditor approval for its rescue plan on Friday

M&S is also trimming its store estate as it bids to catch up in the digital sales sphere.

Debenhams said digital sales growth of 11.5% in the financial year to date was a bright spot but it would accelerate cost-cutting to help limit the impact, explaining that a “new leaner operating model will unlock further opportunity to drive efficiencies in the future.”

Chief executive Sergio Bucher said: “It is well-documented that these are exceptionally difficult times in UK retail and our trading performance in this quarter reflects that.

“We don’t see these conditions changing in the near future and, because it is our priority to maintain a robust balance sheet, we are making very careful choices about how we deploy capital.

“We see clear evidence of progress as our digital growth outperforms the market and customers respond positively to our product improvements and format trials.

“We have also put in place a leaner operational structure and made a number of important hires so that we are well-equipped to navigate the market turbulence.”

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said Mr Bucher had his work cut out to turn the ship around.

“These numbers will be all too familiar to long suffering Debenhams shareholders.

“In 2013 Debenhams was posting pre-tax profits of over £150m a year, but half a decade of falling sales and heavy discounting has trashed margins and left the group struggling to make ends meet.

“CEO Sergio Bucher’s recovery plan seems like the right idea. A background at Amazon means online sales are taking centre stage, and growth here has been strong. Playing to the group’s strengths in cosmetics and concessions also makes sense.

“Unfortunately it all feels like Debenhams is playing catch up with an industry that’s left it behind.”



Source link

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.