Debenhams profits to halve after tumultuous six months
Bad weather and poor Christmas trading have hit profits at the department store.
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%.
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.
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.”