Debenhams drops ahead of Christmas update

Shares in department store chain Debenhams were firmly in the red on Wednesday, kicking off 2019 in the doldrums ahead of its Christmas trading update next week, suggesting that investors are anticipating a disappointing performance.

Russ Mould, investment director at AJ Bell, said: "Pictures on social media of the retailer’s messy shelves and the usual widespread discounts on goods people don’t really want in the first place would suggest that Debenhams continues to be stuck in a rut.

"A trading update expected on 10 January should give the market some answers although expectations remain low for the business to deliver good news."

Debenhams hasn’t updated the market on trading since 25 October.

Since then, other retailers have highlighted challenging conditions, with Sports Direct founder Mike Ashley saying last month that November had been "unbelievably bad" and "the worst on record". Meanwhile, ASOS shares crumbled in December as it issued a shock profit warning following a poor November.

"We know from many of its competitors that November was a terrible month for retailers and December is also likely to have been a struggle," said Mould.

"Debenhams is now worth a mere £57m which is astonishing for a business that generated more than £2bn of sales in its past financial year." Mould joked that the £115m EuroMillions jackpot winner from New Year’s Day could buy Debenhams and still have half their money left over but said that wouldn’t be a sound investment given the company is drowning in debt and has a business model that is increasingly irrelevant in the modern world of retailing.

Meanwhile, independent retail analyst Nick Bubb said he wouldn’t be surprised if Debenhams "had to slip out" an early profit warning this week.

Debenhams unveiled record annual losses in October and said it planned to close up to 50 of its department stores and withdraw the final dividend in order to preserve cash.

The retailer said at the time that it lost £491.5m in the 52 weeks to 1 September due to a fall underlying profits and write-downs of £512.4m as a result of impairments to goodwill and stores, lease provisions and other write-offs.

Underlying profits, which exclude those write-downs and £12.3m of restructuring charges, still fell by two thirds to £33.2m as gross margins declined due to discounting throughout the year.

At 1525 GMT, the shares were down 4.8% to 4.88p.