Money Debenhams profits to halve after tumultuous six months

02:06  15 april  2018
02:06  15 april  2018 Source:   Press Association

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First-half profits at the department store tumbled by nearly a quarter to £85.2m. Photograph: Oli Scarff/Getty Images. Debenhams . "We are currently in discussions with a number of well known brands, some of which are expected to be trialled over the next six months ," said Sharp.

Debenhams warned that profits will miss expectations after January's snowstorms blew a hole in sales figures. Photograph: Tim Ireland/PA. Like-for-like sales for the six months to 2 March rose 3%.

Debenhams profits to halve after tumultuous six months © Provided by The Press Association Debenhams profits to halve after tumultuous six months

Debenhams is poised to report a halving of its profits next week after the retailer performed poorly over Christmas and was forced to close stores in March due to extreme weather.

The department store is expected to post half-year pre-tax profits of just £44 million on Thursday, down from £87.8 million the year before, according to City analysts.

Consensus estimates also forecast a 2.5% decline in like-for-like sales over the six month period.

Debenhams issued a profit warning in early January after a disappointing Christmas period, prompting its share price to plunge by 20%.

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Department store chain Debenhams has seen its shares slump by as much as 24% after warning over profits after it was forced to slash prices to boost flagging festive sales.

The firm has endured a tough 12 months, issuing its second profit warning in less than a year in December and losing its finance chief after a long-held strategy of slashing Debenhams shares, which have fallen 27 percent from six months ago, were up 5 percent to 81.50 pence at 0707 ET.

In the final week of the half, trading was then impacted by the first of two snowstorms which battered the UK in March.

To compound matters, the poor weather coincided with Debenhams’ “Spring Spectacular” promotion, limiting any benefit the retailer might have made from its marketing spend for the event.

Last Tuesday, both Odey Asset Management and Marshall Wace upped their short positions in Debenhams by 0.08% and 0.1% respectively. Odey Asset Management’s current short position stands at 5.51%.

The retailer has closed two stores since October in a bid to reduce costs associated with rent and business rates, and the company has identified a further 10 across the country that could be shut down in due course.

However, the retailer is tied into long-term leases in many of its stores, meaning it must shed staff to save on costs. In February, 320 staff were made redundant in a shake-up of middle-management.

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The firm has endured a tough 12 months, issuing its second profit warning in less than a year in December and losing its finance chief after a long-held strategy of slashing Debenhams shares, which have fallen 27 percent from six months ago, were up 5 percent to 81.50 pence at 1007 GMT.

In its second profits warning in less than a year, the department store group said it expected to make a pre-tax profit of £85m in the first six months of its financial year, 26% less than last year, after hopes were Analysts now expect Debenhams ' profits to come in around 20% below forecasts, which had

Debenhams has identified eight stores that it could close (PA)

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

“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. ”

Debenhams and other retailers are facing severe structural pressures and the firm has started shifting its focus away from fashion towards beauty products and gifts.

Under chief executive Sergio Bucher, who joined the retailer in 2016, the chain has also been refurbishing stores as part of his turnaround strategy.

Adam Cochrane, analyst at Citi, said: “The competitive advantage of the department store has been challenged by online retailers and the large store estate generates low sales density, but the staff costs remain relatively high to service the customers.

“The new management team is focusing on a more service-led and aspirational offer to encourage footfall and early signs from reformatted stores are encouraging.”

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