Debenhams shares fall after profits warning

  • 4 March 2013
  • From the section Business

Shares in department store Debenhams have fallen 14% after the firm said bad weather in January would dent its profits for the first half of 2013.

The firm said trading was "severely disrupted" by the snow that fell across the UK in mid to late January.

Although like-for-like sales in the 26 weeks to 2 March rose about 3% year-on-year, there was a 10% sales fall in the period from 14 to 27 January, it added.

It now thinks first-half profits will be about £120m, less than hoped.

"To recover sales lost due to snow, we introduced additional promotional events in February focused on Valentine's Day, half-term and the month end," the statement said.

"Although these events did drive some incremental sales, they did not fully recover those lost in January."

Debenhams shares have lost 50% of their value since November last year when they were trading at about 120 pence.

'Cautious consumers'

The statement added: "Further, the sales generated were mainly in lower margin clearance lines, which means that gross margin for the first half will be [about] 20 basis points lower than last year.

"Therefore, gross margin for the year is now more likely to be flat than the 10 basis points increase previously guided to."

However, Debenhams said it believed that its second-half forecasts were "robust" and that sales would continue to grow as expected.

"Although the snow will have proved disruptive, the wider problem was that it gave already cautious consumers another excuse not to spend," said Matt Piner, research director at Conlumino.

Mr Piner said there was "very little consumer activity by historic standards" in the second half of January because of the snow.

"This particularly impacted retailers like Debenhams, which rely on the buzz and excitement surrounding sales periods to generate much of their volumes."

He added that retailers such as Debenhams had to strike a "hard balance".

Promotional sales were a "useful tactic" to win back shoppers, but at the expense of undermining margins and eroding profitability.

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