Debenhams issues further profit warning amid fierce competition

Debenhams has warned that annual profit will be at least 20% less than market expectations as the department store chain faces weak consumer spending and discounting by competitors.

Pre-tax profit for the current financial year will be in the range of £35-£40m compared with analysts’ average forecast of £50.3m, Debenhams said.

The gloomy update was Debenhams' third profit warning of 2018 and was triggered by a 2.2% fall in like-for-like sales in the past 15 weeks. Like other retailers the company is suffering from squeezed household finances and intense competition on the high street that has prompted rival House of Fraser to close more than half its stores.

Debenhams announced cuts to capital expenditure to shore up its finances and said it was making cost cuts on top of those already announced. The retailer also said it was reviewing non-core assets.

Sergio Bucher, Debenhams’ chief executive, said: "It is well-documented that these are exceptionally difficult times in UK retail, and our trading performance in this quarter reflects that. We don't see these conditions changing in the near future and, because it is our priority to maintain a robust balance sheet, we are making very careful choices about how we deploy capital.”

Net debt at the end of the financial year will be in line with guidance of about £320m and £200m below Debenhams’ agreed borrowing facilities. To gain “maximum flexibility amidst difficult trading conditions” the company is reducing capital spending to bring net debt in 2019 down from 2018.

Bucher, a former Amazon executive, announced an overhaul at Debenhams last year designed to increase online sales, improve stock control and tidy up cluttered stores. As performance has waned he has closed stores, cut managerial jobs and scrapped product lines that did not sell. Digital sales rose 16% in the past 15 weeks, Debenhams said.