Debenhams fails to tempt shoppers

Hillingdon Times: Debenhams shares fell after a profits warning. Debenhams shares fell after a profits warning.

Debenhams warned of a 26% profits plunge today as a hoped-for sales surge in the last week before Christmas failed to materialise.

Shares in the department store chain fell as much as 13% as the trading update sparked market jitters over the rest of the retail sector, prompting a sell-off among a clutch of other big-name brands.

Debenhams said the failure to entice a rush of shoppers in the days leading up to Christmas meant more reductions were on the way in the new year, while trading conditions are expected to remain "highly competitive".

Pre-tax profits for the first half of its financial year are now expected to fall to £85 million from £114.7 million the year before, after discounting ate into a paper-thin 0.1% like-for-like sales increase for the 17 weeks to December 28.

The group said: "We did not experience the anticipated final surge in sales in the last week of the period and as a result we expect the need for additional markdown to clear stock in January and February."

Retailers embarked on an unprecedented level of promotional activity over the period as they fought over a declining number of high street customers amid continued pressure on household incomes, Debenhams said.

It also blamed bad weather for having an impact on clothing sales, which fell over the 17-week period.

Beauty, home and gifts improved and online sales grew 17% but delivery income was lower than anticipated.

Debenhams said gross margin was down over the period "due to product category mix and higher markdown".

Chief executive Michael Sharp said: "The market was highly promotional in the run-up to Christmas and we responded to these conditions to ensure our offer was competitive.

"However, this extremely difficult environment has inevitably had an impact on both our sales and profitability.

"Looking forward, I expect conditions to remain highly competitive as we enter 2014. Everyone in the organisation is focused on improving performance and growing the business."

The gloomy trading update comes days after reports that Debenhams was under pressure to axe finance chief Simon Herrick amid shareholder concern over his performance.

Mr Herrick has been under fire over a so-called "Santa tax" letter hitting suppliers with demands for discounts days before Christmas.

Today's profits warning spread investor jitters across the retail sector, with Marks & Spencer shares down 2% while Next and Primark owner Associated British Foods also fell.

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