Debenhams to accelerate cost cutting plans after Christmas slump

Debenhams in Ipswich. Picture: SIMON PARKER

Debenhams in Ipswich. Picture: SIMON PARKER

Department store chain Debenhams has warned over profits after it slashed prices to boost flagging sales over the festive period, leading the retailer to accelerate reorganisation plans.

In a trading update brought forward from next week, the retailer said UK like-for-like sales tumbled 2.6% in the 17 weeks to December 30, with overall group sales down 1.8%.

It said “tactical promotional action” helped group sales improve over the six-week Christmas period, rising by 1.2% on a like-for-like basis, but it saw worse-than-expected trading in the first week of the post-Christmas sales.

Debenhams warned that “should the current competitive and volatile environment continue” into the second half, full-year profit before tax is likely to be in the range of £55m to £65m.

This comes after profits for the year to last September slumped 44% to £59m.

The group said it was ramping up cost savings, with around another £10m earmarked for this financial year under a reorganisation being led by chief executive Sergio Bucher.

Mr Bucher revealed plans in April to close 11 warehouses and put up to 10 stores under review, in a move affecting at least 220 jobs.

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Mr Bucher said: “The market has been challenging and particularly promotional in some of our key seasonal categories and we have responded in order to remain competitive for our customers, which has impacted our profit performance.”

But he insisted the group was seeing “positive early signs” from his turnaround.

“The market dynamics we have seen have reinforced our view that we need to move even faster to implement the cultural and organisational changes needed to ensure Debenhams is in the best possible shape for today’s fast-changing retail environment,” he added.

Debenhams bosses said the group has not earmarked more stores for closure despite further cost cutting.

But they said the store estate remained under review, while they plan to accelerate cost cutting in areas such as sourcing, rent and rates and generally throughout its shops.

On the impact on jobs of the restructure, Mr Bucher said: “There will be some jobs that will go - we’ll be creating jobs as well.

“That’s what happens when you reorganise teams.”