Debenhams sales and margins shrink and in third quarter
Department store group Debenhams revealed like-for-like sales shrank in recent weeks and, while it warned that gross profit margins may be flatter than previously thought, full year profit is still on track to hit its target range.
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Group like-for-like sales for the 15 weeks to 11 June, representing the third quarter, fell 0.2% and at constant currencies declined 1.6%.
This represents a marked slowdown as LFL sales in the first half of the year grew 1.1% or 2.4% in constant currencies. Analysts had mixed expectations, with City consensus suggesting a 1% LFL fall or worse, but UBS forecasting an increase of 1% on indications from other retailers that weather and conditions seemed to have improved over the quarter.
Gross margin guidance for the full year was revised to flat, lower than the previous guidance range of 0-50 basis points as promotional activity in womenswear weighed.
But despite the volatile trading environment, the management team, which will see current chief executive Michael Sharp replaced by Amazon Europe's Sergio Bucher in October, said they "currently anticipate" full year pre-tax profit "will be within the range of market forecasts".
This is being helped by costs coming in lower than was feared for the full year, online sales remaining solid at +7% and improved sales from the international division.
Sharp said the weakness in the clothing market in recent months led to an increased effort to drive the non-clothing mix and offering a wider choice of products and services in under-optimised space, including rolling out Jack & Jones and Claire's Accessories concessions and increase the casual dining options in stores.
"In response to more uncertain trading conditions in this period, particularly in clothing, we have focused on managing stock and margins and generating cash."
Strong cash generation continued in the quarter and Sharp said net debt for the year would be in line with the guidance range of £270-£290m.
Independent analyst Nick Bubb said good beauty sales meant LFL sales were "only 0.2% down, which is a relief" in view of City expectations for a 1% decline.
"By implication, profits won’t be at the top of the range…so the shares have sagged first thing, but we will see what management have to say."
Indeed, Debenhams shares were down 5% to 70.4p just before 0900 BST on Wednesday, though still above the five-month low reached last week.