Department store chain Debenhams’ shares have dropped 20% after it warned that annual profits would be lower than expected because of disappointing trading over the key Christmas period.
The retailer said underlying pre-tax profits are now likely to be between £55 million and £65 million this year.
Analysts expected profits to be around £83m.
As for sales in the UK fell 2.6% in the 17 weeks to December 30 in the middle of a “volatile and competitive market”.
Debenhams trading had improved over the six weeks of the Christmas period, with the update, with sales up by 1.2% during the period, but the first week of the after-Christmas sales were worse than expected.
“The market has been difficult and particularly of promotion in some of our key categories of the season and we have responded in order to stay competitive for our clients, which have an impact on our earnings,” said Debenhams chief executive Sergio Bucher.
The retailer said that it was “the acceleration of some aspects” of its strategic plan, Debenhams Redesigned, in order to “deliver a long term sustainable future.”
He said the first signs of the new store format trials in Stevenage and Wolverhampton were “promising”.
Debenhams added that “the reorganization and restructuring of the business” and a review of the central costs were expected to generate savings of £20m.
He said that there was “a positive dynamic digital sales growth”, with smartphone demand up 36% in one year, following the improvement of its mobile site.
However, Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “the Strong growth of its digital offering has been able to save Debenhams from a miserable end of the year.
“The customers turned out for Christmas, but refused to put their hands in their pockets at the approach of the holiday season, or the boxing Day sales.
“Debenhams has been forced to reduce prices to persuade buyers of their money, and as a result, margins have been squeezed profits have been significantly downgraded and the share price has taken a huge hit.”The “damage value”
Sofie Willmott, senior retail analyst at GlobalData, said: “Given the dam of the present value of the available products in the run-up to Christmas, including Black Friday, it is no surprise that Debenhams’ end of season sales led to disappointing results, despite the continuing reductions of the investment.”
“Savvy consumers with tight budgets are looking for value for money and by the permanence of the reduction in the price of the goods, Debenhams is detrimental to the customer perception of the value, which discourages customers to buy from the retailer.”
Debenhams is the UK’s second-largest store operator and has 240 stores in 27 countries.
His current fortunes contrast sharply with those of clothing retailer Next, which has surprised the markets on Wednesday by raising its profit forecast.
Next said annual profits were expected to increase from £8m to £725 after the cold has stimulated the trade before Christmas, sending full-price sales up 1.5% – much better than the 0.3% fall had been forecast.