Debenhams warns on profits as Christmas sales fall

The department store group posted a 1.3% decline in group like-for-like sales and a 0.8% dip in group gross transaction value in the 17 weeks to December 30.

As a result of that and an anticipated “competitive and volatile environment” in its second half, Debenhams warned its full-year pre-tax profits will now likely be in the range of £55m to £65m.

The retailer’s UK like-for-likes sales slumped 2.6% in constant currency, which it attributed to subdued demand at the beginning of the festive period and a poor performance during the first week of its post-Christmas sale.

The department store retailer said “tactical promotional activity” boosted its sales, which were up 1.2% in like-for-like terms and 15.1% online in the six weeks prior to Christmas.

Slashing prices to coax festive sales means Debenhams interim gross margins are now expected to be down 150 basis points year-on-year.

However, the retailer said it has identified a further £10m in additional cost savings.

Debenhams’ international sales rose 2.1% during the period and its online sales increased 9.9%.

Debenhams to ‘move faster’

Debenhams vowed to move “even faster”, saying it would change its culture and organisation to react to changing customer habits.

Those changes will include job cuts but boss Sergio Bucher refused to disclose a number or timeframe. The retailer expects to save £5m in the second half of its financial year as a result of the restructure.

In April, Debenhams revealed that it had identified 10 stores that could become loss-making and that it would move to close those stores if they did start lose money. Bucher said that there were no current plans to up that number but added that he was “constantly reviewing” the programme. The business said that another £5m savings would be made from renegotiating rent and rates.

Bucher said: “The market has been challenging and particularly promotional in some of our key seasonal categories and we have responded in order to remain competitive for our customers, which has impacted our profit performance.

He added: “We are accelerating aspects of our redesign strategy. We’re going to move at a faster pace to make those cultural and operational changes to make sure we are fit for the climate. We want to simplify our structure. We need to reduce the number of levels in the company and become less hierarchical, so we can be more flexible and nimble.”