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Debenhams falls to new lows after third profit alert in six months

Laura Onita
Debenhams' shares were trading at 15.77p a share at one point, a record low over the past five years: Getty Images

The City punished struggling department stores chain Debenhams on Tuesday after it warned on profits for the third time in six months.

The retailer, which is in the middle of a three-year turnaround, said it continued to go through “turbulent times”.

It is struggling with increased discounting from rivals, such as troubled House of Fraser’s recent 60% price cuts, a slump in its clothing and make-up sales and a squeeze on consumers.

Annual pre-tax profits will be between £35 million and £40 million, below the £50.3 million it had expected. The shares plunged 13.4%, or 2.63p, to 16.97p.

Despite this, chief executive Sergio Bucher, who joined Debenhams in 2016 to revive its fortunes, insisted the business was “well equipped to navigate the market turbulence”.

The retailer is looking to offload its Danish business, Magasin du Nord, which has six stores and made underlying profits of £27 million last year, to strengthen its balance sheet. It also has a small in-house printing business, Magenta Print, it could sell.

“A retailer shouldn’t have a printing business in their group,” said finance chief Matt Smith. He also said Debenhams will spend less money next year on some parts of the business such as back-of-house technology.

This year it put aside £140 million for improvements, while next year it will spend between £75 million to £90 million.

“We would expect management not pay a final dividend as a result,” said Investec’s Kate Calvert.

Debenhams said same-store sales fell by 1.7% for the 15 weeks to June 16. Online sales, however, grew 16%.

The company, which has been targeted by short-sellers including hedge fund manager Crispin Odey, has earmarked 10 stores for closure over the next five years. It joins a string of retailers on the High Street, including Marks & Spencer, rival House of Fraser and struggling New Look, in shutting stores.

Bucher, who joined from Amazon in October 2016, is pinning his hopes on beauty products and a slimmed, better-curated fashion offer. It plans to make cost savings of £20 million. “We don’t see conditions [on the High Street] changing in the near future and we are making very careful choices about how we deploy our capital,” he added.

It warned on profits in April, blaming the Beast from the East, and in January, after poor Christmas sales.

Mike Ashley ‘backs us’

The retailer’s boss Sergio Bucher on Tuesday insisted Mike Ashley’s Sports Direct, which has built a near-30% stake in Debenhams, was “supportive” of his turnaround strategy and they have regular conversations.

Sports Direct also owns 11% of House of Fraser, which is closing more than half its stores to stay afloat, fuelling rumours that Ashley (pictured) wants to combine the ailing businesses.

Sports Direct’s significant stake also brings it closer to the threshold at which a formal takeover bid could kick off.