Debenhams share price drops 20 per cent on profit warning: This is how the City is reacting

 
Caitlin Morrison
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British Retailer Debenhams Opens First Australian Store
Debenhams did not perform as well as expected over Christmas (Source: Getty)

Retailer Debenhams unveiled a disappointing trading update for the 17 weeks to the end of December this morning, blaming a "volatile and competitive" market for poor sales.

The group therefore warned that its full-year profit would now come in £55m and £65m if difficult conditions persist, below expectations of around £83m, causing shares to plummet by 20 per cent.

This is how City analysts and retail experts reacted:

Reality check

Connor Campbell, financial analyst at Spreadex, said today's update from Debenhams was a reality check after Next "provided its retail peers with some post-Christmas optimism", and described the retailer as "the first casualty of 2018".

"Debenhams now faces an uphill battle to avoid becoming the next BHS," Campbell warned.

Lee Wild, head of equity strategy at Interactive Investor, also compared Debenhams to Next, and said: "Turns out Next may have given retail sector investors a false sense of security yesterday. Debenhams brought things down to earth with a bump, warning that the fourth quarter of 2017 was bookended by weak trade and that heavy discounting has damaged margins."

Following the digital pack

"Debenhams has been forced to cut prices to persuade shoppers to part with their cash, and as a result margins have been squeezed, profits have been significantly downgraded, and the share price has taken a massive hit," said Hargreaves Lansdown's Laith Khalaf.

"By this time next week we should have a much better idea of how the retail industry and the UK consumer is doing, with the likes of M&S, John Lewis, Tesco and Sainsbury handing in their Christmas scorecards.

"There’s only one certain winner in this season’s retail sector results, and that’s the digital sales channel. It’s telling that the market celebrated 1.5 per cent sales growth from Next, while online retailer ASOS is growing sales by over 30 per cent a year.

"Traditional retailers like Debenhams are belatedly catching on to the importance of a strong digital offering, indeed their latest CEO was recruited from amongst the ranks of Amazon executives."

Outlook uncertain

Ongoing structural challenges, a soft consumer environment, rising costs and increasing capex demands make for a difficult outlook, according to analysts at Liberum, who reiterated their "sell" recommendation and reduced the target price from 40p to 25p.

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