Huge drop in profits expected at Debenhams

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Debenhams

Debenhams is expected to post dismal profits in its half-year results next week as it continues the struggle to keep its head above water.

Pre-tax profits at the department store are set to half from £87.8 million a year earlier to £44 million according to city analysts, while like-for-like sales are also predicted to have dropped 2.5 per cent.

Poor Christmas trading and store closures due to March’s extreme weather, which coincided with its “Spring Spectacular” sale are understood to have hit margins hard.

This follows a profit warning in January which saw share prices plummet 20 per cent. They were further affected last week after both Odey Asset Management and Marshall Wace raised their short positions against Debenhams.

Since his appointment in 2016, chief executive Sergio Bucher has been attempting to drive a turnaround strategy. Although two underperforming stores were shut in October, with a further 10 earmarked for future cuts, many stores in its UK estate are tied to long leases.

Aside from entering into a company voluntary agreement (CVA), Debenhams has had little choice but to cut costs by reducing staff numbers, announcing 320 redundancies in February.

“Long term lease agreements on these stores mean its estate is far from flexible,” Hargreaves Lansdown’s equity analyst George Salmon said.

“Being lumbered with large high street stores isn’t really a position you’d want to be in with online taking a share at a rapid pace.

“These challenges, plus an ugly profit warning after a disappointing Christmas period, have put a few question marks over the dividend and ensured the group is one of the lowest rated retailers we cover. ”

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