* Price cuts failed to improve Christmas sales
* Sees full-year gross margin down 50-70 basis points
* Investec rates Debenhams "sell", sees no quick fix
(Writes through, adds detail, comments, shares)
By Neil Maidment
LONDON, April 15 Britain's No.2 department store
operator, Debenhams, said it would cut back on
criticised promotions, improve its online business and boost
ranges with retailer tie-ups to try to reverse a slide in
The firm has endured a tough 12 months, issuing its second
profit warning in less than a year in December and losing its
finance chief after a long-held strategy of slashing prices
failed to boost its crucial Christmas sales.
Chief Executive Michael Sharp told reporters on Tuesday a
raft of accelerated changes would improve business, although he
remained cautious on the strength of a consumer recovery in the
UK, where it makes more than four fifths of sales.
"Customers haven't fallen out of love with Debenhams. They
still love the brand. The product proposition is still very
strong, and that's where we'll concentrate," Sharp said.
Debenhams shares, which have fallen 27 percent from six
months ago, were up 5 percent to 81.50 pence at 1007 GMT.
Signalling the changes would take time to work, Debenhams
said its gross margin for the year to August would fall by 50-70
basis points. Investec analyst Kate Calvert downgraded her
full-year profit forecast by 4 percent to 110.2 million pounds.
"We are unconvinced there is a quick fix and believe the
investment needed will hold back profits, though we can see a
small bounce in FY15 profits from lower markdown," said Calvert,
who rates Debenhams a "sell".
Across Europe, retailers are battling to attract shoppers as
disposable incomes are squeezed by subdued wage growth and
In March alone, UK retailers slashed prices at the fastest
rate since 2006. Some analysts say Debenhams has struggled
because of a weaker online offering, less popular own-brand
ranges and a reliance on discounts that has damaged its image.
Despite having 158 UK stores against the 41 run by John
Lewis, Debenhams trails its rival in both sales and profits.
It blamed the poor Christmas on lower than expected clothing
sales, fiercer industry promotions that weakened the impact of
discounts and a multi-channel offering that lagged rivals.
The hit to profit margins spread into January and February
as the firm kept prices down to shift stock. Pretax profit for
the 26 weeks to March 1 fell 25 percent to 85.2 million pounds
That was in line with guidance given in its Dec. 31 warning
but well below the 112 million pounds analysts had forecast
prior to the warning. Group underlying sales rose 1.5 percent.
Debenhams said that by Christmas it would introduce a
next-day click and collect service and extend the cut off for
next-day deliveries to become more convenient for shoppers.
It will strengthen its mobile platform, ensure that all of
its UK stores have at least one cafe or restaurant within a
year, and will also rethink its promotional offers.
"We are conscious of the need to avoid promotional fatigue
among customers and so you'll see us move to more defined
promotional periods and fewer promotions overall," Sharp said.
He added that, with 10 percent of space in its UK stores
effectively redundant, it was in talks with retailers about
tie-ups that could see Debenhams offer new products and
services. The firm has been looking at such a deal with Sports
Direct for the past few months but gave no update on
($1 = 0.5976 British Pounds)
(Editing by Kate Holton and Tom Pfeiffer)