Debenhams warns on profits after poor Christmas tradingThursday 02 January 2014 12.37
Department store chain Debenhams has warned that profits would fall well short of market expectations after a hoped-for surge in last minute Christmas shopping failed to materialise, 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.
It said demand had been so poor it would now have to cut prices even further to clear stock, wiping £140m sterling 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 today it would cease its share buyback programme.
Shares in Debenhams fell sharply in London trade today.
Debenhams said it now expects profit before tax for the first half of its fiscal year to be in the region of £85m, down from analyst forecasts of £112m and 26% lower than the same time last year.
In the 17 weeks to December 28, it reported like-for-like sales of 0.1% 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' chief executive 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," he added.