Debenhams issues post-Christmas profit warning

Debenhams has issued a profit warning and halted its share buyback scheme. Picture: PA

The department store chain warned that its first-half profits would fall to about £85 million this year from £114.7m, after it was forced to slash prices in the run-up to the big day, sending shares down 12 per cent.

Analysts expect profits at Marks & Spencer – which cut clothing prices by 30 per cent over the weekend before Christmas – to also have suffered.

John Lewis, which posts a trading update tomorrow, and Next, which is due to report on Friday, are tipped to be among the winners on the high street.

Debenhams chief executive Michael Sharp said: “The market was highly promotional in the run-up to Christmas and we responded to these conditions to ensure our offer was competitive. However, this extremely difficult environment has inevitably had an impact on both our sales and profitability.

“I expect conditions to remain highly competitive as we enter 2014.”

Debenhams’ like-for-like sales edged up by just 0.1 per cent during the 17 weeks to Saturday, with its gross transaction value climbing by 0.7 per cent.

It said clothing sales were “weak”, while beauty, gifts and home were among the “better-performing categories”.

The company added: “Gross margin declined in the 17 weeks due to product category mix and higher markdown.

“We did not experience the anticipated final surge in sales in the last week of the period and, as a result, we expect the need for additional markdown to clear stock in January and February. Our expectation for gross margin for the first half is a decline of between 80 and 100 basis points.”

Debenhams’ profit warning sent its shares down 10.15p, or 12.2 per cent, to 73p. The FTSE 250 stock’s fall dragged down other retailers, with M&S closing 10.1p, or 2.3, per cent lower at 432.6p and supermarket Sainsbury’s – due to post figures next Wednesday – tumbling 6.1p, or 1.6 per cent, to 365p.

Clive Black, an analyst at Shore Capital, highlighted M&S as one of the stocks he was “most concerned about” over its Christmas performance. Analysts at Nomura have already cut their forecasts for M&S’s full-year pre-tax profit and its underlying non-food trading figures.

Data released yesterday by Ipsos’ retail traffic index showed that footfall at non-food stores rose by 0.7 per cent year-on-year during December, with hefty promotions helping the rate to pick-up from the 0.6 per cent posted at the start of last month. Tim Denison, director of retail intelligence at Ipsos, said: “Retailers threw everything at this year’s campaign.

“The month got off to a busy start, as consumers took to the streets early to secure anchor presents and take some of the stress out of Christmas this year.

“During the middle of the month, we saw footfall levels ebb and flow as retailers continually reviewed their sales and stock levels then adjusted promotional tactics to stimulate demand as required. Fashion retailers, in particular, fell under pressure to promote deep and early as mild weather capped interest in winter wear.

“Christmas week itself had everything: a quiet, wet and windswept Sunday, followed by a manic Monday as the door began to close on last-minute gift hunting; a Christmas Eve and Day brought alive by some major retailers launching their online sales, and Boxing Day cannibalised to a degree by online foraging; culminating in a frenetic Friday and stratospheric Saturday, which proved to be the busiest in-store day of the sales.”