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Debenhams shares dive as poor Christmas prompts profit warning Debenhams shares dive as poor Christmas prompts profit warning
(35 minutes later)
Shares in Debenhams dived 12% as the department store warned that first half profits had been hit by "an unprecedented level of promotional activity," in the runup to Christmas. Shares in Debenhams dived 11%, knocking £110m off the value of the department store group, as it warned that first-half profits had been hit by "an unprecedented level of promotional activity," in the runup to Christmas.
The retailer 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, as a hoped-for late surge in sales in the week before 28 December failed to materialise. The retailer 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, as a hoped-for late surge in sales in the week before 28 December failed to materialise. Its shares were also hit as the company said the disappointment on profits meant it would be halting its share buyback programme.
Analysts now expect Debenhams' profits to come in some 20% below forecasts, which had already been cut ahead of Christmas when it became clear that trading was not going well. Analysts now expect Debenhams' profits to come in some 20% below forecasts, which had already been cut ahead of Christmas when it became clear that trading was not going well. House broker Oriel, for example, cut its expectations for the full year by 13% to £135m on 18 December but the company is now expected to make just £115m for that period.
House broker Oriel, for example, cut its expectations for the full year by 13% to £135m on 18 December but the company is now expected to make just £115m for that period. Michael Sharp, the chief executive, said: "The market was highly promotional in the runup to Christmas and we responded to these conditions to ensure our offer was competitive. However, this extremely difficult environment has inevitably had an impact on both our sales and profitability.
Debenhams' second profits warning in less than a year is the first sign of a tough festive season for clothing retailers who have been hit by a combination of relatively mild weather, pressure on household incomes and competition from this year's expensive must-have electronic gadgets such as tablet computers and gaming consoles. "Looking forward, I expect conditions to remain highly competitive as we enter 2014."
Shares in rival retailers including Marks & Spencer, Sainsbury's and Next were also hit by worries that other clothing retailers had also suffered. Debenhams' second profits warning in less than a year is the first concrete sign of a tough festive season for clothing retailers who have been hit by a combination of relatively mild weather, pressure on household incomes and competition from this year's expensive must-have electronic gadgets such as tablet computers and gaming consoles.
Shares in rivals Marks & Spencer, Sainsbury's and Next were hit by worries that Debenhams was not the only clothing retailer to suffer. M&S was the biggest faller in the FTSE 100, down 2.5% to 432p.
"The mid-market struggled, that was pretty obvious from the discounting in the high street pre-Christmas and not all of it looked pre-planned," said Kate Calvert, an analyst at Investec. "There will be a slight miss on sales but the bigger hit will be on gross margins.""The mid-market struggled, that was pretty obvious from the discounting in the high street pre-Christmas and not all of it looked pre-planned," said Kate Calvert, an analyst at Investec. "There will be a slight miss on sales but the bigger hit will be on gross margins."
The latest problems at Debenhams will also pile pressure on its finance director, Simon Herrick, who was already seen as likely to exit the company after a series of disappointments on profits. The latest problems at Debenhams will pile pressure on its finance director, Simon Herrick, who was already seen as likely to exit the company after a series of nasty surprises for investors on profits.
Debenhams blamed its troubles on issues affecting the whole retail sector rather than its own mistakes. "As widely documented, the retail sector as a whole has been highly competitive with an unprecedented level of promotional activity. This is largely due to declining high street footfall, as evidenced by the BRC/Springboard Footfall Monitor, continued pressure on household incomes and the impact of unseasonal weather on clothing and clothing-related sales," the retailer said in a statement. Debenhams blamed its troubles on issues affecting the whole retail sector rather than its own mistakes. "As widely documented, the retail sector as a whole has been highly competitive with an unprecedented level of promotional activity. This is largely due to declining high street footfall, as evidenced by the BRC/Springboard Footfall Monitor, continued pressure on household incomes and the impact of unseasonal weather on clothing and clothing-related sales," the retailer said in a statement.
It said group underlying sales rose by just 0.1% in the 17 weeks to 28 December, despite a 27% rise in sales online. But the biggest hit came from a higher level of discounting as the retailer struggled to attract shoppers – cutting gross profit margins by up to 1%. It said group underlying sales rose by just 0.1% in the 17 weeks to 28 December, despite a 27% rise in sales online. The figure suggests sales in stores open more than a year fell back. But the biggest hit to profits came from a higher level of discounting as the retailer struggled to attract shoppers – cutting gross profit margins by up to 1%.
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