Debenhams warns over full-year profit as sales drop

Department store Debenhams warned on Tuesday that full-year profits could be towards the lower end of the current range if market volatility continues, as it reported a drop in third-quarter like-for-like sales.

In the 15 weeks to 17 June, LFL sales declined 0.9%, or 2.4% at constant currency, as the company highlighted a "more volatile" UK trading environment in the second half of the year. However, it said its targeted destination categories of beauty, accessories and food & drink have helped to mitigate the impact of a weaker clothing market. With 13 new food offers in the period, food sales have risen 5%.

Debenhams said it expects 2017 pre-tax profit to be within the range of market expectations, but if market volatility continues, the outcome could fall towards the lower end of the range.

Chief executive officer 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."

George Salmon, equity analyst at Hargreaves Lansdown, said: "After choosing to leave his position at the top of Amazon’s European fashion division to take over as CEO at Debenhams, we can assume Sergio Bucher likes a challenge. However, the task in front of him now looks all the more difficult.

"Recent figures from the ONS show sales volumes in the retail industry are growing at their lowest level for 4 years, and Debenhams is feeling the pinch. Trends in its key sales metrics have gone into reverse in recent weeks.

"The new CEO’s strategy, namely to improve the online offering, de-clutter the stores and step up the quality of the in-store service, seems sensible. However, Debenhams has struggled for years. Particularly in these difficult times, we feel investors should remember that it's one thing to correctly diagnose the problem and quite another to successfully apply the cure.”

At 0928 BST, the shares were down 3.9% to 42.75p.