UK department store Debenhams (DEB) has issued a profit warning for the first half of the year, after an expected surge in sales in the final week leading up to Christmas failed to materialise. The shares fell 12 per cent on the news and shortly afterwards, the company also announced that finance director Simon Herrick was to step down.
Chief executive Michael Sharp said the market had been highly promotional around the festive season and, with shoppers strapped for cash, Debenhams was forced to mark down items more heavily to compete with rivals, impacting both sales and profitability. He now expects pre-tax profit to total £85m in the first half, down £30m on the same period last year. A trading statement covering the 17 weeks to 28 December reported like-for-like sales growth of just 0.1 per cent, against some analyst forecasts of 2.7 per cent. Stronger sales in the beauty, home and gift categories were offset by weak clothing sales. Costs rose in line with previous guidance and online sales grew 27 per cent over the period, but delivery income was lower than expected. Due to the poor Christmas trading, Debenhams will now have to cut prices further to clear stock in January and February. This means the gross margin in the first half is likely to fall by 80 to 100 basis points.
At the time of the full-year results in October, Mr Sharp said the year had not been "without its challenges". Now, it seems, things could be equally tricky in 2014, as Mr Sharp believes conditions will remain "highly competitive". Given the current trading, the board has decided to scrap further share buybacks, but will continue to use cash to invest in the business, pay the dividend and cut net debt.
