Debenhams posts second profit warning of the year

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Debenhams profit warning

Debenhams has blamed competitor discounting and market weakness after it issued its second profit warning of the year.

The department store retailer said the challenging market conditions resulted in “below plan” trading in May and early June, despite weak comparatives, forcing it to “reassesses” expectations for the remainder of the year.

The chain now expects full-year pre-tax profits to come in between £35 million and £40 million, down from previous estimates of £50.3 million.

Debenhams said this meant further cost cuts were now on the horizon, as it strives to focus on “self-help and prioritising cash generation”.

“We also intend to conduct a strategic review of non-core assets, aiming to focus investment behind our strategy,” the retailer said.

However, no store closures nor job cuts were announced in its latest trading update, which covered the 15 week period as well as the 41 week fiscal year to date ending June 16.

Debenhams spokesman told Press Association that it was still planning to review the future of 10 of its stores over the next five years, as previously announced.

The review forms part of the Debenhams Redesigned strategy, which was first announced last year and also includes a footprint reduction of up to 30 of its stores, new customer experience initiatives, and partnership deals with external firms.

In addition, the leases of 25 locations may be renegotiated as they come up for renewal over the next five years, and earlier this year, 320 store management roles were identified for redundancy.

Debenhams’ trading update stated that its group gross transaction value for the 15 week period was down 1.5 per cent, while for the year to date it was down 1.6 per cent.

Meanwhile, group like-for-like sales over the 15 week period was down 1.7 per cent, and for the 41 weeks to date it was down 2.1 per cent.

Digital sales was the silver lining in the retailer’s financial performance, surging 16 per cent in the 15 week period and 11.5 per cent in the year to date.

Debenhams added that it was on track to deliver £20 million in cost savings as part of its Debenhams Redesigned turnaround plans.

Chief executive Sergio Bucher said: “It is well-documented that these are exceptionally difficult times in UK retail and our trading performance in this quarter reflects that.

“We don’t see these conditions changing in the near future and, because it is our priority to maintain a robust balance sheet, we are making very careful choices about how we deploy capital.

“We see clear evidence of progress as our digital growth outperforms the market and customers respond positively to our product improvements and format trials.

“We have also put in place a leaner operational structure and made a number of important hires so that we are well-equipped to navigate the market turbulence.”

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