Jobs threat as Debenhams issues profit warning

Debenhams (Frankfurt: D2T.F - news) has issued a profit warning and refused to rule out job losses after a weak festive season - its shares falling 24% in response.

In a trading statement that was brought forward from next week, the retailer said it had been forced to slash prices to boost flagging sales - describing business as "highly competitive and volatile".

The department store chain said like-for-like sales in the 17 weeks to 30 December in its core UK market fell 2.6% overall.

"We took tactical promotional action to improve our performance which resulted in a stronger six-week Christmas period against tough comparatives, with like-for-like sales up 1.2% in constant currency and digital growth of 15.1%," the statement said.

It added: "However, the first week of post-Christmas sale was below expectations despite further markdown investment, particularly in the highly seasonal gift category."

As a result, the group said it now expected full-year profit before tax to fall in the range of £55m to £65m. The City had been expecting a figure around £83m.

It said an acceleration in cost-cutting - with a further £10m in savings identified - was helping to cushion reduced profitability.

While the company was yet to announce any job losses as part of the new savings drive, its chief executive Sergio Bucher said jobs were expected to be created too as part of the chain's reorganisation.

It had previously put 10 stores under review as it moves to bolster profitability and trim rent bills.

The update from Debenhams suggested it was likely to be another mixed Christmas for the retail sector after Next (Frankfurt: 779551 - news) defied its own forecasts of a weaker festive season to post a surprise increase in sales.

While Debenhams shares plunged in early Thursday trading, they later recovered some of the lost ground to be 15% lower by the close.

Rivals were also feeling investor pain, with M&S losing nearly 4% and topping the fallers on the FTSE 100.

Lee Wild, head of equity strategy at Interactive Investor, said of the shareholder reaction: "Debenhams brought things down to earth with a bump, warning that the fourth quarter of 2017 was bookended by weak trade and that heavy discounting has damaged margins."

Mr Bucher told his investors: "The market has been challenging and particularly promotional in some of our key seasonal categories and we have responded in order to remain competitive for our customers, which has impacted our profit performance.

"Nevertheless, we are seeing positive early signs from the changes we have made as part of our Debenhams Redesigned strategy.

"The market dynamics we have seen have reinforced our view that we need to move even faster to implement the cultural and organisational changes needed to ensure Debenhams is in the best possible shape for today's fast-changing retail environment."