Debenhams sounds new profit warning sending shares down

Debenhams today announced an update on trading for the 26 weeks to 2 March 2019, which falls short of the profits forecast statement which was made on 10 January, with a drop in sales reported.

The group’s like-for-like sales fell by 5.3% and its gross transaction value saw a 5.4% decline, though digital sales have grown by 2% across the period.

On 12 February 2019, Debenhams announced it had received a “£40m bridge facility” to give it more time to secure longer term investment. In today’s trading update, it said discussions with stakeholders have now progressed to include options to restructure the balance sheet in order to address future funding requirements, and talks are “continuing constructively.”

The update said that while “trading headwinds” have moderated in recent weeks, this process is likely to be disruptive to the business in the coming months. Increased financing costs as a result of additional working capital needs means that the group's statement made on 10 January that Debenhams was "on track to deliver current year profits in line with market expectations" is no longer valid.

Sergio Bucher, Chief Executive of Debenhams, 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.”

The group is also being stalked by Sports Direct boss and shareholder Mike Ashley, who has said the firm has little chance of survival. Ashley recently used the voting power of his near 30% stake in Debenhams to block the re-appointment of its chairman Sir Ian Cheshire (retail veteran Terry Duddy is currently chairing the business) and to force Sergio Bucher from the board, though Bucher remains CEO.

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

Additional reporting: The Press Association.