Debenhams issues fresh profit warning as sales continue to drag

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Debenhams has issued a fresh profit warning, saying its turnaround plan is likely to prove “disruptive” as trading remains tough.

The retailer, which is carrying out a restructuring that includes store closures in exchange for a further cash lifeline from its lenders, said that while sales had continued to fall since its last update to the market, the rate of decline had moderated.

In the first half of its financial year to 2 March, Debenhams’ like-for-like sales in its core UK market were 6% lower.

They were 5.3% lower for the group as a whole as consumer sentiment remained damaged in the run-up to Brexit.

Debenhams’ said: “Taken together with macroeconomic uncertainties and increased financing costs as a result of additional working capital needs, this means that the group’s statement made on 10 January that we were ‘on track to deliver current year profits in line with market expectations’ is no longer valid.”

Shares, which have taken a battering in the last year amid the financial crisis at the retailer, fell 8% in early deals to leave its market value languishing below £40m.

Debenhams’ battle for survival is being fought on several fronts.

Shareholder opposition, led by Mike Ashley’s Sports Direct, resulted in chief executive Sergio Bucher being voted off the board in January.

Chairman Sir Ian Cheshire quit in the aftermath of the vote, with former Home Retail Group boss Terry Duddy taking his place on an interim basis.

Mr Ashley, who last year rescued Debenhams rival House of Fraser out of administration, has a holding of just under 30% in Debenhams.

He had offered a £40m financial lifeline of his own to the board but was rebuffed.

Debenhams later netted a £40m credit facility from its banks and the money is dependent on its turnaround remaining on course.

The company said: “The annualised £80m cost saving programme is on track, and we expect the first ranges resulting from our sourcing partnership with Li & Fung will be in stores in the current season.”

It continues to expect to close 50 stores in the coming months with the potential for thousands of job losses.

Mr Bucher said: “We are making good progress with our stakeholder discussions to put the business on a firm footing for the future.

“Our priority is to secure the best outcome for the business and all our stakeholders, whilst minimising the number of store closures and job losses.

“To do this, as we have said before, we will need the support of both landlords and local authorities to address our rents, rates and lease commitments.”

Paul Hickman, analyst at Edison Investment Research, said of the profit warning: “Debenhams has again lowered expectations following a continued negative trading record.

“Observers will be forgiven for disagreeing that gross transaction value of sales down 5.0% in Q2 (second quarter) compared with 5.6% in Q1 (first quarter) represents much of a moderation in headwinds.

“However, it isn’t the desperate trading picture that management says is affecting profits, but the ‘process’ – meaning the execution of the £80m cost saving programme, the transition to the sourcing partnership with Li & Fung, and balance sheet restructuring measures including store closures.

“CEO Sergio Bucher’s call to landlords and local authorities “to address our rents, rates and lease commitments” reads suspiciously like an appeal to charity.”

(c) Sky News 2019: Debenhams issues fresh profit warning as sales continue to drag

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