Debenhams profits plummet after `extreme weather’

Debenhams, Ipswich. Picture: LUCY TAYLOR

Debenhams, Ipswich. Picture: LUCY TAYLOR - Credit: Archant

Debenhams in trouble - profits plunge nearly 85% after battering from the Beast from the East

Debenhams, Arc shopping centre at Bury St Edmunds. Picture: PHIL MORLEY

Debenhams, Arc shopping centre at Bury St Edmunds. Picture: PHIL MORLEY - Credit: Archant

Major high street layer Debenhams - with stores in the heart of Ipswich and Bury St Edmunds, is in trouble after the long, hard winter.

Debenhams saw its half-year profits plunge nearly 85% after extreme weather brought in by the Beast from the East gouged earnings.

The retailer said its bottom-line pre-tax profits fell from £87.8 million to just £13.5 million over the 26 weeks to March 3, having taken a major hit during the final days of the trading period when bad weather forced Debenhams to temporarily close around 100 stores.

Snow, ice and cold weather has already been a factor in the failing of the likes of Toys R Us and Maplin; forcing customers to stay at home and increasing the proportion of them switching to shopping on line.

Debenhams is the latest to be hit, and it is a major worry for town centres, including Ipswich and Bury St Edmunds, where they are key department stores in the retail offer.

These figures come on the back of disappointing results from Marks & Spencer, revealed last month.

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These are the Debenhams figures, which include a tough Christmas.

On an underlying basis - having been stripped of £28.7 million in exceptional costs linked to its strategic review and restructuring - pre-tax profits slumped 51.9% to £42.2 million.

That was below analysts’ forecasts, which had placed pre-tax profits at around £44 million.

Debenhams also blamed a “disappointing Christmas season” for increasing competitor discounting and ultimately hitting underlying earnings for the UK, which fell 39.3% over the half-year.

Like-for-like sales, meanwhile, dropped 2.2%, with the retailer citing a “challenging UK market background”.

Difficult trading over Christmas prompted a profit warning by the retailer back in January, sending shares down 20%.

It is now forecasting full-year pre-tax profits at the lower end of the current range of forecasts of between £50 million to £61 million.

Chief executive Sergio Bucher said: “It has not been an easy first half and the extreme weather in the final week of the half had a material impact on our results.

“But I am hugely encouraged by the progress we are making to transform Debenhams for our customers.”

He added: “We are holding share in a difficult fashion market, and, in other categories such as furniture, exciting new partnerships have the potential to transform our offer.

“We approach the remainder of the year mindful of the very challenging market conditions, but with confidence that we have a strong team and the right plan to navigate them and return Debenhams to profitable growth.”

Debenhams and other retailers are facing severe structural pressures and the firm has started shifting its focus away from fashion towards beauty products and gifts.

Under chief executive Mr Bucher, who joined the retailer in 2016, the chain has also been refurbishing stores as part of his turnaround strategy.

The retailer also announced on Thursday that its chief financial officer, Matt Smith, is leaving to take up a post as finance director at Selfridges.

A search for his replacement is currently under way.

Debenhams shares tumbled as much as 10% at the start of trading.

Russ Mould, an investment director at AJ Bell, said Debenham’s full-year profit forecast amounts to a “mild profit warning, given prior management guidance of £55 million to £65 million range”.

“And that excludes the £28.7 million in additional costs and charges relating to the acceleration of the Redesigned strategy.

“This latest drop in annual profits will only add to a grim sequence of declines which makes it clear just how serious Debenhams’ competitive position really is.”

The retailer has closed two stores since October in a bid to reduce costs associated with rent and business rates, and has identified a further 10 across the country that could be shut down in due course.

However, the company is tied into long-term leases in many of its stores, meaning it must shed staff to save on costs.

In February, 320 staff were made redundant in a shake-up of middle-management.

Are you a Debenhams customer?

Where do you think the store has gone wrong - and what can it do to turn things round?