Debenhams sales plummet 12% as stores issued profit warning

by XPRESS, 06 March 2019

Shares in Debenhams have tumbled after the troubled retailer warned over profits as sales continue to come under pressure, with the firm also locked in restructuring talks with its lenders.

The department store chain said in an unscheduled update that its January statement claiming it was on track to deliver profits in line with market expectations is "no longer valid".

It warned that trading headwinds, efforts to put the group on a secure financial footing and macroeconomic uncertainties were hitting the company hard.

The profit alert is the fourth in just over a year and sent shares down 12% to 2.8p in morning trade.

In February, Debenhams secured a £40 million lifeline from its lenders to act as a bridge while the company continues talks for a longer-term refinancing.

"Discussions with stakeholders have now progressed to include options to restructure our balance sheet in order to address our future funding requirements, and are continuing constructively," it said on Tuesday.

Debenhams also plans to shut 50 stores amid long-term pressures on the high street, putting 4,000 jobs at risk.

Boss Sergio Bucher said on Tuesday: "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."

Debenhams also said that, in the eight weeks since January 10, sales have improved somewhat, but are still in decline. Gross transaction value fell 5% in the period, with like-for-like sales down 4.6%. Overall, for the 26 weeks to March 2, comparable sales are down 5.3%. The UK fell 6% with international slipping 2.3%.

Debenhams said an £80 million cost-saving programme is on track.

The group is also being stalked by Sports Direct boss and shareholder Mike Ashley, who has said the firm has little chance of survival.

Neil Wilson, chief market analyst at Markets.com, said: "There has been some progress for Debenhams in terms of its discussions with lenders, but trading remains very tough.

"Still struggling and still levered up to the hilt - the only hope is restructuring of the balance sheet and some deals with landlords. Mike Ashley may well still swoop - the rationale for a tie-up with House of Fraser remains compelling.

"The question this really raises is - even if Debenhams can restructure balance sheet, can it manage with this kind of sales decline?"

Article Cerdit: Insider