Debenhams’ Christmas sales slip as it continues talks with lenders over its future
Sales at troubled department store chain Debenhams dived over Christmas, its latest trading update revealed today, sending its share price even lower.
In the 18 weeks to 5 January like-for-like sales fell 5.7 per cent compared to the same period last year.
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The retailer said it is on track to hit its current year profit expectations of £8.2m which it said would be supported by removing a further £80m in costs.
Debenhams’ share price fell 4.5 per cent this morning to 5.39p.
For the six weeks to 5 January group gross transaction value fell 3.8 per cent with group like-for-like sales down 3.4 per cent.
Debenhams said weak store footfall had been somewhat offset by growth in digital with sales rising six per cent over the six-week period.
It also said that due to the volatile UK retail environment it “reinstated some tactical promotional activity in order to be competitive and manage inventory tightly, which will result in some gross margin erosion in the first half”.
The retailer said it is engaging in “constructive discussions” with its lenders, in light of the need to refinance banking facilities over the next 12 months.
Debenhams had previously launched a programme to close stores 50 stores putting 4,000 jobs at risk after a series of profit warning saw its share price tank as investors worried it could go the way of rivals BHS and House of Fraser which both collapsed into administration.
Sergio Bucher, chief executive of Debenhams, said: "We have worked hard to deliver the best possible outcome in very uncertain times for retailers. We responded to a significant increase in promotional activity in the market, particularly in key seasonal categories, in order to remain competitive for our customers.”
He added: “In order to ensure that Debenhams has a sustainable and profitable future we need a strong customer proposition, a strengthened balance sheet and a reshaped store portfolio. We have a robust plan to deliver this and while there is much work still to do, the performance of our redesigned stores over peak, and continued outperformance in digital, reinforce our view that we are taking the right steps to protect the future of the business."
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Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “Debenhams is really under the cosh with a heavy fall in sales, and its margin will take a hit too because it’s been forced into cutting prices to attract bargain hunters.
“The department store says it remains on track to deliver profits in line with market expectations, but it’s still early days in Debenhams’ financial year, and it looks like cost cutting is going to be front and centre of keeping profits above the water mark.”
Russ Mould, investment director at AJ Bell said: “Debenhams may have bought itself some time with the latest trading update, yet you cannot ignore that fact that its business model is less relevant in the modern world of retail.
“As such, anyone brave enough to pump new money into the company would want a cracker of a discount to the current share price in order to be adequately compensated for the risks they would be taking on.”
Debenhams’ share price fell 11.3 per cent this morning to 5p.