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UPDATE 2-Debenhams delivers H1 profit warning after January snow
March 4, 2013 / 8:01 AM / 5 years ago

UPDATE 2-Debenhams delivers H1 profit warning after January snow

* Jan 14-27 like-for-like sales down 10 pct

* 26 weeks to March 2 like-for-like sales up 3 pct

* Sees H1 pretax profit of 120 mln pounds vs forecast 130 mln pounds

* CEO says company “in good shape” despite warning

* Shares down 11 percent

By James Davey

LONDON, March 4 (Reuters) - British department store group Debenhams said on Monday it expected profits in the first half of its 2012-13 year to fall about eight percent short of forecasts after a blanket of snow smothered January sales.

Shares in Britain’s second-largest department store group fell 11 percent to 84 pence by 1242 GMT after it said in an unscheduled trading update that it expected pretax profit for the 26 weeks to March 2 to be around 120 million pounds ($180 million).

“What you have to remember is that the snow fell across the whole country, the trading period that was disrupted was smack bang in the middle of the January sale and it covered the month end of January which is a strong trading period,” Chief Executive Michael Sharp told Reuters.

With Britain teetering on a third recession in four years retailers have been finding the going tough as consumers fret over job security, a squeeze on incomes and government cuts.

Debenhams did have a decent Christmas and said it was trading well in January before the first significant fall of snow in almost a year hit the country. Analysts had forecast a consensus pretax profit of about 130 million pounds.

In an attempt to recover the lost sales Debenhams introduced additional promotional events in February, focused on Valentine’s Day, the school half-term holiday and the month end.

These drove incremental sales but did not fully recover those lost to the snow and came at a cost to profit margins.

The firm said that while sales at stores open over a year grew by about 3 percent in the 26 weeks to March 2, during the snow-affected period of Jan. 14-27 UK like-for-like sales fell about 10 percent.

Debenhams said gross margin for the first half will be about 20 basis points lower than last year, while for the full-year it was more likely to be flat, rather than the 10 basis points increase guided to in the firm’s Jan. 8 update.

“Our sense had been that weekly volatility has been a fact of life and that, with Christmas and the early part of the January sales out of the way, the sector would navigate the snow without profit warnings,” said Sanjay Vidyarthi, analyst at Espirito Santo Investment Bank.

Weekly data from rival and British department store leader John Lewis has shown it coped much better with the snow, recording total sales rises of 6.7 percent and 9.8 percent in the weeks to Jan. 19 and Jan. 26 respectively.

Sharp suggested Debenhams was disproportionately impacted because its over 150 stores are nationwide, whereas John Lewis is south east biased. Also Debenhams’ online presence is less significant, with its stores providing 88 percent of total sales, while for John Lewis it is about 75 percent.

The CEO said the firm had won market share in the first half and expected sales to grow in the second half, on the back of a strong spring/summer collection and the benefits of refurbished stores coming through.

“We’re in good shape, I‘m absolutely clear that the issue that’s affected us is directly attributable to snow,” he said.

Debenhams’ full year guidance on costs, capex, dividends and its share buyback programme was maintained. Shares had been up 28 percent over the last year before Monday’s profit warning.

Panmure Gordon analyst Jean Roche cut her full year pretax profit forecast to 156.4 million pounds from 166.4 million pounds and her price target to 104 pence from 112 pence.

Analysts said investors were reading across to Marks & Spencer, Britain’s biggest clothing retailer, whose shares were down 2 percent.

“We sense that M&S will have continued to have lost market share but possibly held margins,” said Vidyarthi.

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