Debenhams sees festive sales slide but profits on track

The department store group is pushing ahead with a major restructuring programme. Picture: Stefan Rousseau/PA Wire

The department store group, which is pushing ahead with a major restructuring programme, saw like-for-like sales fall 3.4 per cent in the six weeks to 5 January, weighed down by its core UK market where sales were 3.6 per cent lower.

However, the firm said it remained on track to deliver on profit expectations defying City predictions that it would issue a fresh earnings alert.

Digital sales rose 6 per cent over the six-week period, despite a slower start to the peak shopping season.

Chief executive Sergio Bucher said the results were the “best possible outcome” in an uncertain time for the high street.

The group warned that the UK trading environment remained “volatile”, with savvy consumers actively seeking out discounts. This will result in some erosion of profit margin in the first half, it added.

Bucher said: “We responded to a significant increase in promotional activity in the market, particularly in key seasonal categories, in order to remain competitive for our customers.

“We have taken decisive steps to maintain rigorous cost and capital discipline, and I am grateful to my colleagues for their hard work as we maintain a rapid pace of change.”

The firm has embarked on a major strategic shift, including the closure of 50 branches and the launch of a new store design concept. In its trading update it noted that the new-format stores had outperformed other sites.

John Moore, senior investment manager at Brewin Dolphin Scotland, said: “[This] update from Debenhams will come as no surprise to anyone – the business is really struggling.

“The group is approaching a crunch point in the next 12 months: it has indicated that discussions over refinancing have commenced with lenders, but stories are already circling that they will demand a restructuring of the business.

“It is, nevertheless, clear that significant change and investment is required if Debenhams is to secure its future.”

Laith Khalaf, senior analyst at Hargreaves Lansdown, added: “Debenhams is really under the cosh with a heavy fall in sales and its margin will take a hit too because it’s been forced into cutting prices to attract bargain hunters.

“It looks like cost cutting is going to be front and centre of keeping profits above the water mark.”