UK: Debenhams H1 profits hit by snow
- Profit before tax fell 5.4% to GBP120.3m over H1
- Sales grew 3.5% to GBP1.5bn
- Like-for-like sales grew 3.1%
UK department store operator Debenhams recorded a dip in profits after bad weather hit trading, but said it expects improvement in the second half.
The company said today (18 April) that profit before tax fell 5.4% to GBP120.3m (US$183.4m) over the six months to 2 March. Overall sales grew 3.5% to GBP1.5bn, rising 3.1% on a like-for-like basis. In the UK, revenue grew 3.9% over the half to GBP1.2bn.
"We made progress during the first half although snow in late January meant we did not achieve the profit outcome we had expected," said chief executive Michael Sharp.
"Like-for-like sales grew for the fourth consecutive half and we saw positive market share momentum in key categories. Our multi-channel activities continued to grow with online sales increasing three times faster than the market. The transformation of Oxford Street into our international flagship store is on time and on budget.
"We expect to make further progress in the second half despite consumer sentiment remaining weak and challenging market conditions."
Commenting on the results, Conlumino analyst George Scott said that the retailer responded to the poor weather by utilising promotions around Valentine's Day and half-term to shift unsold stock.
"This inevitably hit profits, with gross margins falling 2% over the period; for the full year, margins are expected to remain unchanged compared to 12 months ago, rather than rising by the previously forecast 1%," he said.
"However, a wider use of discounting is arguably threatening Debenhams' value proposition. While Xmas promotions started as early as Christmas Eve, leading to sector-wide margins pressures and a deficit in January footfall, Debenhams' discounting has been more enduring than its rivals.
"Its leadership maintains that this is key to its value-for-money credentials, but this is somewhat undermining its brand equity, as consumers avoid paying full price, instead waiting for knock-down prices. This promotion addiction will undoubtedly weaken the retailer's ability to charge more premium prices, especially as consumer finances improve."
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