Another day, another profit warning from high-street department store chain Debenhams (DEB). As part of a half-year trading update, the group revealed a 5.7 per cent squeeze in like-for-like sales during the 26 weeks to 2 March 2019, with sales across the UK falling by more than 6 per cent and international revenue down 3.5 per cent. The one bright spot was digital sales, which mustered a 4.6 per cent improvement over the period, although gross transaction volumes at the group level were still down 5.6 per cent.
This comes barely three weeks after the group secured an additional 12-month senior secured credit facility with lenders, adding roughly £40m-worth of liquidity. Welcome news to some, perhaps, although the group has since warned that ongoing discussions to restructure the balance sheet and address future funding requirements could be disruptive to trading in the second half of the current financial year. As such, a January 2019 statement that said the group was on track to deliver profits in line with market expectations is "no longer valid". Around 50 stores are set to close their doors in the "medium term", but bosses have made no further quantification of the damage to profitability.
Analysts at Peel Hunt say management’s expectations are now "drifting away" from market consensus for breakeven this year, downgrading its own full-year loss forecast of £4.4m to £30m – a position the broker said was "exacerbated by fully drawn facilities and the additional £40m facility". It also warned that the second half would be hit by working capital "challenges" and disrupted trading – even before the company voluntary arrangement (CVA) to accelerate store closures is taken into account.
