Debenhams shares slump 21 per cent on profit warning after Christmas fails to deliver

 
Rebecca Smith
Debenhams did not have a huge amount of festive cheer this year
Debenhams did not have a huge amount of festive cheer last year (Source: Getty)

Investors may have been hoping retailers would follow in the footsteps of Next's upbeat update yesterday, but Debenhams said this morning that Christmas didn't deliver it the gift it was hoping for.

In fact, the retailer said full year profit was now expected to come in between £55m and £65m if difficult conditions persist, below expectations of around £83m, according to Reuters data.

Read more: This is how the City reacted to Debenhams' poor festive performance

Shares slumped 21 per cent in early trading.

Read more: Next shares soar as it hikes profit guidance after strong online sales

The figures

In its trading update for the 17 weeks to 30 December, the retailer said the early weeks of the quarter were disappointing amid a "volatile and competitive" market.

It said tactical promotional action helped secure a stronger six-week Christmas period "against tough comparatives" with like-for-like sales up 1.2 per cent in constant currency, and digital growth of 15.1 per cent.

But the first week of post-Christmas sale was below expectations despite further markdown investment - particularly in its gift category.

Group constant currency like-for-like sales were down 1.8 per cent across the quarter. UK like-for-like sales dropped by 2.6 per cent.

Debenhams said that if the current environment continues, it's expecting profit before tax for the year to come in between £55m-£65m.

Why it's interesting

Yesterday, Debenhams' share price got a helpful boost after Next's festive cheer saw it hike profit guidance. But this morning, it unveiled a gloomy trading update over Christmas, and its latest profit guidance comes despite saying it had identified another £10m of cost savings.

The retailer said price cutting had become a must as the market had become more promotion-driven, and it responded "in order to remain competitive for our customers".

Debenhams said it had been working on a more flexible operating model as part of its plan to simplify its operations, which will result in "reorganisation and restructuring activity" - in both its stores, and its support centre.

What the company said

Sergio Bucher, chief executive of Debenhams, said:

The market has been challenging and particularly promotional in some of our key seasonal categories 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.

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