Yahoo Finance Debenhams profits slump 85% after being bitten by 'beast from the east'
Debenhams is to cut the size of at least 30 stores as it blamed “profound change” in shopping habits and bad weather for an 85% slump in pre-tax profits.
The department store group said sales at established stores declined 2.2%, or 2.8% at constant currencies, in the 26 weeks to 3 March, against a challenging UK market background.
Underlying sales in the UK slid 4.1% as the “beast from the east” forced the retailer to temporarily shut almost 100 stores.
The temporary closures during the final week of the six-month period, when large parts of the UK were brought to a standstill by heavy snow and bitter cold weather, accounted for about a 1% fall in underlying sales in the first half. Digital sales fared better, rising 9.7%.
Pre-tax profit slumped to £13.5m, from £87.8m in the same period a year earlier, a decline of 84.6%. The pre-tax figure includes an exceptional charge of £28.7m relating to the cost of a strategic review and restructuring the company’s warehouse and logistics operation.
Excluding these extra costs, underlying profit before tax was £42.2m, down 51.9%.
Debenhams admitted that for the full year, profit before tax was expected to be at the lower end of forecasts of £50m to £61m.
Debenhams’ share price fell as much as 10% in early trading but by late morning it had recovered nearly all its losses for the day.
The share price has fallen by a third since the beginning of the year. It slumped 20% on the day in early January when Debenhams issued an unexpected profit warning owing to poor Christmas trading.
The Debenhams chief executive, Sergio Bucher, said: “A combination of a disappointing Christmas and structural change in the market means it has not been an easy half year.”
He admitted that Debenhams’ products had not been good enough at Christmas and the company was revamping its fashion ranges, ending collaborations with Jeff Banks and John Rocha and bringing in a new line by Richard Quinn.
“The UK retail environment is undergoing profound change ... We expect no help from the external environment, so we are focused on delivering our Debenhams redesigned strategy, aiming to mitigate difficult trading conditions through self‐help initiatives,” Bucher said.
The retailer is talking to landlords about reducing space at 30 stores as shoppers switch to buying online.
Cutting the size of its Uxbridge site in west London by a fifth improved profits and there are plans to shrink the Wimbledon store by nearly a third this year.
Debenhams said 25 stores were up for lease renewal in the next five years, giving it an opportunity to renegotiate rents or potentially move out. It has identified eight stores that could potentially close, on top of two that shut last year, but Bucher said the focus was on reducing store size.
As clothing sales continue to shrink, Debenhams is handing over space to restaurants and other food businesses and planning to revamp its beauty halls to bring in more services such as blow-dry bars.
“The high street needs to embrace shopping as leisure activity,” said Bucher.
But he added that government could also help the high street, which is suffering from mass store closures and administrations. “Paying taxes is something we all should be proud of as we all deserve great healthcare ... [but] the government is responsible to make sure we have an even playing field. Right now business rates give an unfair advantage to online pure-play competitors and that needs to be addressed.”
The group’s chief financial officer, Matt Smith, is leaving after less than three years in the job for rival Selfridges, where he will become finance director.
