Debenhams issues third profit warning this year

Debenhams has issued yet another profit warning. 

The UK department store expects full-year profits to be lower than expectations due to “increased competitor discounting and weakness in key markets”.

The company expects profits to be between £35 million and £40 million, down from a previously revised forecast of £50.3 million.

In the 15 weeks to 16 June, like-for-like sales at stores open for over a year dropped by 1.7%, while digital sales rose by 16% in the same period.

Debenhams, Parliament Street, Harrogate, North Yorkshire. [Image by Mtaylor848, via Wikimedia Commons]
The retailer said that it will be accelerating cost-cutting strategies and plans to move on to a “new leaner operating model” that will “unlock further opportunity to drive effencies in the future”.

Debenhams chief executive Sergio Bucher said the company will try and negotiate rent reductions with landlords on 25 locations. Debenhams will also be closing up to 10 loss-making stores and cut the size of at least 30 stores.

“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.”

The profit warning comes as many high street retailers in the UK face challenges as consumers shift more towards online shopping.

Shares in Debenhams dropped by almost a fifth in early trading down on Tuesday down to 16.9p.