Debenhams profits dip after cold January weather

By DOMINIC JEFF
Published on 04/03/2013 20:27

DEPARTMENT store chain Debenhams’ good run of fortune came to a halt yesterday when it warned that bad weather in January will hit profits.

It said that earnings will miss expectations and that underlying revenues were 10 per cent lower in the affected fortnight, compared with a 5 per cent rise over Christmas and New Year.

The chain held promotional events during February in a bid to recover the lost sales but the consequent impact on margins means profits for the six months to 2 March will be around £120 million, against £128.5m a year earlier and City forecasts in the region of £131m.

Chief executive Michael Sharp said he was confident that spring and summer ranges will put the chain back on track.

He added: “Whilst the impact of the snow on the outcome for the first half is disappointing, it is now behind us and sales volumes have recovered.”

Sales still grew by 3 per cent across the group’s financial first half. However, analysts were surprised by the update and questioned the reliability of the firm’s guidance.

Cantor Fitzgerald’s retail team cut its target price on Debenhams from 95p to 80p and re-iterated its recommendation to reduce holdings, saying: “While snow would undoubtedly have had an effect, this is the second downgrade this year, which makes us believe management is trading the business too aggressively for the current consumer environment.”

Independent retail expert Nick Bubb pointed out that rival John Lewis did not appear to feel the chill during January.

“Debenhams has ‘form’ when it comes to selectively blaming snow for poor trading, but at least it’s come out promptly with an overview of the full picture,” he said. “Sales have recovered, but gross margin has been hit.”

The chain’s problems contrasted with new figures showing the struggling retail sector’s sales grew at their fastest rate in two years last month, although the rise still only matched inflation. The British Retail Consortium’s (BRC) February retail sales monitor said like-for-like retail sales grew by 2.7 per cent compared to the same month in 2012, while total sales up 4.4 per cent, the fastest rate since February 2010.

The like-for-like figure is the same as official estimates of inflation but BRC director

general Helen Dickinson said the figures were a welcome sign of a gradual improvement as customer sentiment turned positive.

She said: “After the disappointing figures that brought 2012 to a close, it’s reassuring that the sales momentum established during an encouraging January has built, not faded.”

February’s figures show growth across all parts of retailing, with big-ticket goods and items for the home recovering particularly well, possibly reflecting better conditions in the housing market.

However, Dickinson said it was too soon to assume Britain was seeing the start of a long term turnaround.

Online companies continued to enjoy the best of the growth, with sales up 10.9 per cent.