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Debenhams issues post-Christmas profit warning

Debenhams has warned that its profit for the 2018 financial year is likely to be lower than market expectations, after its group like-for-like sales fell by 1.3% in the 17 weeks to 30 December.

In constant currency, group like-for-like sales during the quarter were down 1.8% on the previous year. This was dragged down by a poor performance in the UK (falling 2.6%), which offset a 2.1% rise in international sales. Online sales were up 9.9%. 

Debenhams said the early weeks of the quarter had been “disappointing”, and as a result it took “tactical promotional action” to improve its performance, which resulted in a stronger six-week Christmas period.

Like-for-like sales during this period were up 1.2% in constant currency, while online sales grew 15.1%.

However, trading during the first week of its post-Christmas Sale ”was below expectations, despite further markdown investment”.

The retailer blamed the “volatile and highly competitive” trading environment for the slump in sales, pointing out that the market has become ”more promotion-driven”.

It said that, should this environment continue into the second half of its 2018 financial year, its profit before tax for the full year likely be between £55m and £65m – lower than the City consensus of £78m to £95m.

This is despite having identified additional cost savings of around £10m.

Gross margins in the first half are now expected to be around 150 basis points down on the year before.

Sergio Bucher, chief executive of Debenhams, said: “The market has been challenging and particularly promotional in some of our key seasonal categories [such as gifting], and we have responded in order to remain competitive for our customers, which has impacted our profit performance.

“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.”

It comes after Next yesterday posted a surprise 1.5% uplift in full-price sales over the Christmas period, thanks to “much colder” weather.

 

 

Readers' comments (1)

  • 'Tactical Promotional Action'.

    In other words, we have to discount to get people in our stores.

    Debenhams have created their own problems as they discount so much, that when they don't, the consumer will wait until it does.

    Not great for brands that don't have a limited discount agreement with them either.

    Debenhams must get out of the lower to middle market discount hell they have created. Downsize and go upmarket and seriously look at rebranding and their current business model is going nowhere.

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