Debenhams price cutting sparks shock profit warning
● Like-for-like UK sales off 2.6% ● Cost-cutting to be revved up
Sharesindebenhamsplunged yesterday on a profits warning after the department store grouphadslashedfestiveprices to match competitors.
Bringing a trading update forward from next week, the company revealed UK samefloorspace sales slid 2.6 per cent in the 17 weeks to 30 December. Debenhams’ overall group sales fell nearly 2 per cent.
Group chief executive Sergio Bucher, who has instigated significant cost-cutting as part of a turnaround strategy since taking the helm a year ago, said: “The market has been challenging and particularly promotional in some of our key seasonal categories and we have responded in order to remain competitive for our customers, which has impacted our profit performance.”
Debenhams put the City on notice that should the current “volatile environment” go on into the second half, annual pre-tax profits were now likely to be in the range of £55 million to £65m.
This compared with a previous City consensus profit forecast of about £83m.
The retailer said “tactical promotional action” helped group sales improve over the six-week Christmas period, rising 1.2 per cent on a likefor-like basis, but it saw worsethan-expected trading in the first week of the post-christmas sales.
Debenhams said it was ramping up cost savings, with another £10m earmarked for this financial year and £20m extra annually – ranging from the shops themselves to sourcing and rents.
In April, Bucher outlined plans to shut down 11 warehouses and put up to ten stores under review, in a move leading to at least 220 redundancies.
He added yesterday: “The market dynamics we have seen have reinforced our view that we need to move even faster to implement the cultural and organisational changes needed to ensure Debenhams is in the best possible shape for today’s fast-changing retail environment.”
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Strong growth for its digital offering has failed to save Debenhams from a miserable end to the year. “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.”
On the impact on jobs of the restructure, Bucher said: “There will be some jobs that will go – we’ll be creating jobs as well.
“That’s what happens when you reorganise teams.” Budget carrier Easyjet has revealed that it now offers 40 Edinburgh routes, having added two summer destinations of Jersey and Seville in Spain. Flights to both new destinations will operate twice a week. Ali Gayward, Easyjet’s UK country manager, said the airline is the largest in Scotland, carrying almost one in three Scottish travellers. “We’re committed to expansion at Edinburgh and new routes will help us to deliver long-term, sustainable growth,” Gayward said.