Debenhams chief executive Michael Sharp defended the group’s Christmas performance, after a late surge of shoppers buying perfume and make-up failed to make up ground lost by disappointing winter clothing sales earlier in the season.
Shares in the group fell 8% to 69p after it said its beauty departments had enjoyed a strong run in December, but a challenging season in clothing meant first-half profits, which are due in April, would be at the lower end of expectations. Retailers’ profit margins are normally much higher on clothing, especially heavy-duty winter jackets and knitwear.
But, along with other retailers, Debenhams was caught out by last autumn’s unseasonably warm weather, which left many fashion chains with piles of unsold winter clothes.
“This is a good performance in a difficult and challenging period,” said Sharp. “Our performance steadily improved following the well-documented challenges in the clothing market in the autumn. We wouldn’t be immune to what is going on in the market place.”
The UK’s second largest department chain reported a 0.8% fall in like-for-like sales in the 19 weeks to the 10 January. However, in the four-week period covering Christmas and new year, underlying sales were up by 4.9%.
Last year, Debenhams was forced to issue a profits warning, after heavy discounting over the festive season eroded profits. Sharp has been trying to wean shoppers off a regular programme of discounts and he said it ran 10 fewer promotional days, although it took part in Black Friday – a US-inspired discount day at the end of November. Online sales on Black Friday were up 125%, while sales over the week as a whole were up more than 10%.
Investec analyst Kate Calvert downgraded the shares to a “sell” and trimmed her 2015 profit forecast by £1.6m to £111.7m. “Trading and gross margin over the 19 weeks were weaker than expected, resulting in a nudge down in forecasts,” she said. “While it is encouraging that management stuck to its new trading stance with 10 fewer days on promotion, we continue to believe that Debenhams is strategically challenged.”
The company said it had seen good growth from its international franchise stores in south-east Asia and the Middle East. The Danish department store chain that Debenhams bought in 2009, Magasin du Nord, outperformed its UK parent, with a 9.2% increase in like-for-like sales for the four weeks to the 10 January.
