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Debenhams issues profit warning due to ‘volatile market’

Published: 27 June 2017 - Fiona Garcia
 

The UK department store - which boasts a strong offer of housewares, homewares, electricals, and outdoor living and garden goods – has warned investors that its pre-tax profit could be lower than anticipated if the current “market volatility” continues.

Debenhams said in a trading statement today that it currently anticipates its 2017 profit before tax will be “within the range of market expectations”. However, it added that the UK trading environment had been more volatile in the second half of its trading year and that, if that trend continues, “the outcome could be towards the lower end of the current range”.

Gross sales for the 15 weeks to June 17 were flat at +1% and up marginally at +1.7% for the 41 weeks to that date. Like-for-like sales for the same trading periods were reported at +0.9% and 1.8% respectively.

The tough trading conditions have been blamed on a weak clothing market but Debenhams said the declines have been mitigated by the performance in its beauty, food and drink, and home and garden accessories categories.

The retailer said digital sales growth has slowed in recent weeks, “in line with the UK online market” but said year-to-date figures were positive, with a 12.6% growth for the 41 weeks ended June 17. Debenhams added that digital growth continues to be driven by mobile demand, with further enhancements, including a new payment page, supporting rapid mobile growth, up 47% year on year and improved conversion rates, up 12%.

As part of an ongoing transformation plan for the business, Debenhams has brought in two new directors to its senior leadership team: Sally Hyndman, who has joined from Dixons Carphone as HR director, and Angela Morrison, who has joined from Direct Line as technology and supply chain director. The two new directors have been tasked with leading the changes that are set to make Debenhams’ supply chain “customer-led rather than process-driven,” explained the retailer.

As part of this process, Debenhams has switched to a single-warehouse management system and, in turn, begun consultation on the closure of its Northampton distribution centre and 10 regional warehousing facilities. It also plans to streamline its offer and reduce stock options by around 10% to declutter stores.

Debenhams CEO Sergio Bucher said: “We are making progress in implementing our exciting and ambitious new strategy, Debenhams Redesigned, which will make us the destination for Social Shopping. We have already started to deliver changes that will improve service for our customers and simplify and focus our operations.  

“As industry data has confirmed, May was a tough month for retailers and we continue to see volatility in trading week to week. As a result we are focused on delivering cost control and self-help through our “Fix the Basics” plan. We continue to build good foundations for longer term growth at Debenhams by becoming a Destination, Digital and Different.”

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