Debenhams target share price cut by Investec due to post-Brexit foreign exchange concerns and an expected slowdown in UK demand

Helen Cahill
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Debenhams Department Store In Controversial Flotation
Debenhams faces structural problems, analysts said (Source: Getty)

Brexit is beginning to bite for retailers.

Investec this morning said Debenhams face a "foreign exchange headwind" that will hit the department store in 2018.

Read more: Debenhams raids Amazon for new chief executive

Retail analyst Kate Calvert cut Debenhams' target share price to 52p.

The cut comes after analysts expressed concerns about Sports Direct at the beginning of the month, because it is not hedged for its US dollar purchases.

Calvert said: "Incoming CEO Sergio Bucher not only inherits a structurally challenged company in our view, but will arrive post a material foreign exchange shift."

Debenhams is about 90 per cent hedged for the year 2017, but the impact of foreign exchange rates will be bigger in 2018, Investec said; the department store sources around half of the cost of its goods sold in dollars.

Read more: Debenhams' share price falters after retailer announces drop in sales

Investec cut its predictions for Debenhams' profit before tax for 2018 by 26 per cent to "reflect a lower UK sales assumption" and the impact of foreign exchange rates. The bank also expected a trim to profits between two and eight per cent in 2016-17.

The department has "self-help opportunities", Calvert said, such as optimising its store space, marking down prices and making its business more efficient.

However, Debenhams would face a "material profit decline" in 2018 anyway, due to structural challenges.

"It is difficult to see how growth can be injected given the continued shift online, a less flexible cost base and the investment needed in the offer," Calvert said.

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