January 4, 2018 / 7:19 AM / 2 years ago

Debenhams' Christmas nightmare sours mood on UK high street

LONDON (Reuters) - Department store group Debenhams DEB.L slashed its annual profit forecast on Thursday after it was forced to cut prices to drive sales of Christmas gifts, illustrating the challenges facing some of Britain’s best known retailers.

People walk past a Debenhams store in Stockport, Britain January 4, 2018. REUTERS/Phil Noble

Shares in the 240-year-old company slumped as much as 24 percent after the mid-market retailer rushed out sales figures a week earlier than expected.

Its performance underlines the threat to traditional British retailers from online competition, a decline in demand for clothing and pressure on consumer spending.

Chief Executive Sergio Bucher said customers had “come late to Christmas”, and when they did start shopping its gifts were not special enough to encourage them to buy without discounts.

“Gifting has become very promotional,” he told reporters. “In hindsight, if I’d do anything different I think my gifting pipeline would be more premium and differentiated.”

Debenhams is second ranked in department stores by sales value to John Lewis, which said on Wednesday its sales in the week before Christmas rose 8.9 percent.

Bucher said a raspberry-flavoured gin flew off the shelves, but lower priced items at Debenhams such as cards and decorations did not appeal.

It held its ground in a declining clothing market, he added, and stronger demand for beauty and food helped drive a 1.2 percent rise in like-for-like sales in the six weeks before Christmas.

But shoppers did not return for the post-Christmas sale, resulting in more price cuts and a further dent to margins.

Trade in September and October had also been poor, contributing to an overall 2.6 percent fall in underlying British sales in the 17 weeks to 30 December.


Bucher, a former Amazon (AMZN.O) and Inditex executive, who joined Debenhams in 2016, set out a plan to revive the company in April, centred on closing a few stores, revamping others, cutting promotions and improving its online offer.

He said on Thursday the strategy would be implemented more quickly, with another 10 million pounds of cost cuts largely from central functions that would entail some job losses.

“We need to get there quicker because business as usual will not make us successful in the future,” he said.

The group, which trades from over 240 stores across 27 countries, has already identified 10 stores that could become loss-making and subsequently closed.

Its shares were trading almost 16 percent at 30 pence at 1225 GMT, weighing on fellow retailers such as Marks & Spencer (MKS.L), just a day after an upbeat statement from Next (NXT.L) raised hopes that retailers had defied forecasts for gloomy Christmas trading.

Broker Peel Hunt downgraded Debenhams to “sell” from “hold” after the warning but cautioned against trying to read too much into it.

“This isn’t a retailing or macro issue, this is all about Debenhams,” their analysts said. “We believe the customer proposition is simply not compelling enough.”

The share price fall netted estimated profits of around 12 million pounds on Thursday for hedge funds “shorting”, or betting against the stock, according to Reuters calculations.

Eight hedge funds, including Blackrock and Odey Asset Management, have short positions totalling 14.3 percent of the company – the second highest on any UK stock, according to filings from UK regulator the Financial Conduct Authority.

Debenhams biggest shareholder is Mike Ashley’s Sports Direct (SPD.L), which holds 21 percent. Its shares were down 2 percent.

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The price cuts took a toll on its margins, with gross margin seen down by about 150 basis points in the first half, far below its target of a 25 basis point fall for the year to September 2018.

It said its profit before tax for the year was now likely to be in the range of 55-65 million pounds.

Debenhams reported underlying profit before tax of 95 million pounds last year and analysts had been expecting a figure of 83 million pounds in 2018, according to Reuters data.

Additional reporting by Alasdair Pal; Editing by Kate Holton and Keith Weir

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