By Kate Holton and Neil Maidment
LONDON Dec 31 Debenhams warned of a
sharp fall in profit on Tuesday after big discounts failed to
spur a surge in last-minute Christmas shopping, sending a shiver
through weaker British retailers.
In an ominous sign for rival Marks & Spencer,
Britain's second-largest department store group said it would
now miss analysts' first-half profit forecasts and would have to
cut prices even further to clear stock.
A sea of red sale signs across the country's high streets in
December illustrated retailers' battle for cost-conscious
customers in a tentative economic recovery and as more people
Their efforts were hampered by storms which battered Britain
and kept many shoppers at home on some of the biggest trading
days of the year.
M&S, Britain's biggest clothing retailer, made the rare move
of slashing 30 percent off all clothing in the run up to
Christmas prompting fears it too had suffered in the critical
Debenhams' unscheduled trading statement sent shares in the
firm down 12 percent, wiping 120 million pounds off its market
value. Shares in M&S fell 2 percent, while more resilient
retailers held steady.
"The market was highly promotional in the run up to
Christmas and we responded to these conditions to ensure our
offer was competitive," Debenhams Chief Executive Michael Sharp
Debenhams has long used promotions to drive sales, offering
50 percent reductions in the run up to Christmas on some items.
But the company said it had to offer particularly deep discounts
this year to keep up with competitors.
"This extremely difficult environment has inevitably had an
impact on both our sales and profitability," Sharp said.
The company said it now expected profit before tax for the
first half of its financial year to March to be in the region of
85 million pounds ($140.47 million), below analysts' forecasts
of 112 million pounds, according to Thomson Reuters data.
That would be a 26 percent fall from a year ago.
"It looks like they've obviously had a very challenging
Christmas period," Numis analyst Andrew Wade said. "..we don't
expect others to be warning in such a dramatic fashion."
Marks & Spencer is due to give a trading update on Jan. 9
and weak figures would pile more pressure on Chief Executive
Marc Bolland whose recovery plan around higher quality and more
stylish fashions has so far failed to kick-start sales.
Employee-owned John Lewis is due to report trading
on Thursday while Next, Britain's second-biggest
clothing retailer, is due to publish figures on Friday. Both are
strong competitors for Debenhams, which has a weaker online
Research this month by PwC found 72 percent of 100 high-
street retailers were on sale or advertising promotions.
Data from Experian for last week showed there was a 13.9
percent decline in footfall, or the number of shoppers who went
into stores, while those who shopped online on Dec. 26 were up
15 percent on last year, marking the country's biggest ever day
for online shopping.
In the 17 weeks to Dec. 28, Debenhams reported like-for-like
sales growth of 0.1 percent as demand for gifts, beauty and home
products just offset weak demand for clothing. The deep
discounting is likely to knock its gross margin for the first
half by between 80 and 100 basis points, it said.
Debenhams said in light of the tough trading it would cease
its share buyback programme.