Struggling British department store chain Debenhams has issued a fresh profit warning as sales continue to fall. 

Shares in the British department store group were down by 3.5% this afternoon (5 March) on the back of its latest trading update. Debenhams said its forecast made on 10 January – which stated the group was “on track to deliver current year profits in line with market expectations” – is no longer valid.

As set out in the update, for the 18 weeks to 5 January, group gross transaction value (GTV) declined 5.6%, with like-for-like sales down 5.7%. The UK was down 6.2% with international down 3.5%. Digital sales grew by 4.6% across the period. 

In the subsequent eight weeks, Debenhams said group GTV has moderated its decline to 5%, with like-for-like sales now down by 4.6%.

Overall, for the 26 weeks of the first half of the financial year, group GTV has declined 5.4%, with like-for-like sales down 5.3%. The UK was down 6% with international down 2.3%. Digital sales have grown by 2% across the period.  

The retailer added its annualised GBP80m (US$105.1m) cost saving programme is on track, and it expects the first ranges resulting from its new sourcing partnership with Li & Fung to be in stores in the current season. 

Meanwhile, discussions with stakeholders have progressed to include options to restructure the group’s balance sheet in order to address its future funding requirements, and are “continuing constructively”.

However, while trading headwinds have moderated in recent weeks, Debenhams said the process is likely to be disruptive to its business in the coming months. 

Chief executive Sergio Bucher said: “We are making good progress with our stakeholder discussions to put the business on a firm footing for the future. We still expect that this process will lead to around 50 stores closing in the medium term.

“Our priority is to secure the best outcome for the business and all our stakeholders, whilst minimising the number of store closures and job losses. To do this, as we have said before, we will need the support of both landlords and local authorities to address our rents, rates and lease commitments. I would like to thank our staff – and all our stakeholders – for their continued support through this period, as we work to deliver a sustainable future for the company.”

Debenhams’ Redesigned strategy flounders

Sofie Willmott, senior retail analyst at GlobalData, notes despite being up against weak comparatives, Debenhams has continued on a downward trajectory in the first half of 2018/19 following a disappointing performance in 2017/18, with the retailer’s Redesigned strategy announced almost two years ago yet to deliver positive results.

“Debenhams’ much-needed image revamp including a new logo and strapline “Do a bit of Debenhams” alongside ongoing discounting across product categories has not been enough to bolster demand as shoppers reined in non-essential spend amidst economic uncertainty,” she says. “The online channel performed much better than stores however minor growth when digital accounts for c22% of Debenhams’ revenue was not enough to have a significant impact on top line performance. Unlike close competitor Next that has long focused on its online division, aided by its background as a catalogue retailer, and is now able to rely on e-commerce to prop up sales, Debenhams does not have the same solid e-commerce grounding that is much needed to protect sales as spend shifts online.”

Given the troubles at House of Fraser across the period with stores looking empty and unloved and its website proposition being dialled back, Willmott says Debenhams should have been able to steal share.

She adds: “The predicted poor performance across the two players, alongside John Lewis’ full-year results which are expected to be muted when they are announced on Thursday (7 March), is evidence of the ongoing struggles of department store retailers. Although changes are being made to product ranges and the experiential element is a key focus for the retailer, it is questionable whether this will be enough to draw consumers back into Debenhams.”