Debenhams posts 24.5% drop in first half profit

Tuesday 15 April 2014 08.08
The fall in profit was in line with guidance given by the company late last year
The fall in profit was in line with guidance given by the company late last year

Debenhams, Britain's second largest department store group, said it was confident improvements it was making to its business would eventually deliver for investors, after posting an as-expected 25% fall in first-half profit.

The company has endured a tough 12 months, issuing its second profit warning in less than a year in December.

It also lost its finance chief after a much-criticised strategy of slashing prices failed to boost its crucial Christmas sales.

The hit to margins, which spread into January and February as the firm kept prices down to shift stock, meant pretax profit for the 26 weeks to 1 March fell 24.5% to £85.2m from £112.8m a year ago.

That was in line with guidance given in its 31 December warning but well below the £112m analysts had forecast prior to the warning.

Debenhams Chief Executive Michael Sharp said it believed its focus on building a more competitive multi-channel offer and improving operations would herald an improvement.

"Whilst we remain cautious about the strength of the UK consumer recovery, I am confident the changes we are putting in place will provide a better customer experience and, over time, stronger results for our shareholders," Mr Sharp said.

While many British retailers have resorted to fierce promotional activity to win shoppers some analysts believe Debenhams has struggled more than most due to its weaker online offering, reliance on discount offers and less popular own-brand ranges.

Despite having 158 British stores against the 41 run by John Lewis, Debenhams trails the latter in both sales and profits.

The company has a total of 240 stores in 29 countries, including 16 on the island of Ireland.

Retailers across Europe have also been struggling as subdued wage growth and austerity measures squeeze shoppers' disposable income. Most have responded with price cuts.

At Debenhams, first-half group sales grew 1.7% to 1.3bn, but lower than expected sales in Britain and a 100 basis points decline in gross margin due to a rise in discounts dragged down profit.

Shares in Debenhams closed at 77.55p yesterday, down 28% on six months ago, valuing the business at £971m.