Debenhams issues fresh profit warning as expectations are ‘no longer valid’

Debenhams warned this morning that its profit expectations for the current year were "no longer valid", as a combination of increased financing costs and market uncertainties signalled further disruption for the embattled department store chain.

The high street retailer has withdrawn its full-year outlook today, saying discussions with stakeholders have "now progressed to include options to restructure our balance sheet in order to address our future funding requirements", in a process that it warned was "likely to be disruptive to our business in the coming months."

Shares in Debenhams during early morning trading were down more than six per cent.

In January Debenhams said that it was on track to deliver current year profits in line with City expectations, as it posted a 5.7 per cent dip in like-for-like sales over the crucial Christmas trading period.

Last month the retailer, which issued three profit warnings last year, also confirmed that it had struck a £40m lifeline deal with lenders to buy it extra time in its battle for survival.

Read more: Debenhams secures £40m loan in fight for survival

The loan was accepted despite the retailer rejecting a previous offer of a £40m interest-free loan from Sports Direct owner Mike Ashley, which it said was an attempt to "apply further pressure" on its directors.

In a statement today 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."

Bucher added: "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."

However, Edison Investment Research analyst Paul Hickman said that Bucher’s call to landlords and local authorities "reads suspiciously like an appeal to charity".

Read more: Debenhams may slash 10,000 jobs in rescue plan

Neil Wilson, chief market analyst for Markets.com said: "In terms of sales, the first 18 weeks was in line with the January statement – total group sales declining 5.6 per cent, with life-for-like (LFL) down 5.7 per cent. UK sales are being particularly hard hit, down 6.2 per cent, while international sales were just 3.5 per cent lower. Digital sales are better – up a healthy 4.6 per cent.

"Following this, there are signs that the sales decline is slowing, with total group sales down five per cent in the subsequent eight weeks. LFL sales are lower by 4.6 per cent. So first half sales were 5.4 per cent across the group, or 5.3 per cent lower on a LFL basis. UK first half sales down six per cent, with international down 2.3 per cent. Digital sales are up two per cent in the first half.

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

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