The City trimmed its forecasts for Debenhams yesterday as a disappointing sales relapse in its third trading quarter outweighed the department store chain saying it remained on track to meet full-year profit forecasts.
Matthew McEachran, an analyst with N+1 Singer, said weak clothing and footwear markets suggested Debenhams’ “tactical promotional activity in (the second trading half) will be higher than planned so margin guidance is reduced”.
He said the broker estimated “a £10 million profit shortfall” at the gross profit level for the full year. Shares in Debenhams, which had already slid 20 per cent over the past year amid tough trading conditions, closed yesterday down a further 6.1 per cent, or 4.55p, at 69.7p.
It came as Debenhams yesterday posted a 1.6 per cent fall in same-floorspace sales excluding currency movements for the 15 weeks to 11 June, and warned that its profit margins would be lower than expected as it slashed prices to shift stock.
Debenhams said it had used “tactical” discounting after seeing weaker sales of womenswear since the new year, but added that it remained on track with an overall move to cut down on promotions and special offers.
Outgoing chief executive Michael Sharp said: “In response to more uncertain trading conditions in this period, particularly in clothing, we have focused on managing stock and margins and generating cash.”
The sales slide marks a sharp reversal of the 2.4 per cent rise seen in the previous six months, and follows a cold spring that has hit high street womenswear sales.
David Stoddart, analyst at Edison Investment Research, said: “Incoming chief executive Sergio Bucher will have to address the structural challenges facing Debenhams, the scale of which were hard to identify in the third quarter because of that perennial problem, the great British weather.”
Sharp – who is stepping down on Friday after nearly five years at the helm – said the group was “holding its own” in a difficult wider clothing market, which was more than 4 per cent lower in its third quarter.
He said trading had also been affected by uncertainty ahead of today’s EU referendum, as well as the timing of Easter, Mother’s Day and Father’s Day.
Debenhams said its international arm – including Magasin du Nord in Denmark – saw a rise in constant currency sales in Q3, although it added that trading was mixed.