Skip to main content

UK’s Debenhams Cuts Profit Forecast Again, May Sell Danish Stores

British department store chain Debenhams cut its profit forecast for the third time in six months on Tuesday and said it might sell its Danish shops to bolster its finances and help cope with an industry crisis at home.

A string of British store groups have either gone out of business or announced plans to close shops this year, as they struggle with subdued consumer spending, rising business property taxes and growing online competition.

Department stores appear particularly vulnerable, with Bhs going bust in 2016 and House of Fraser announcing plans earlier this month to shut around half of its shops.

Shares in Debenhams fell as much as 19.4%, taking year-on-year losses to over 60 percent, after the firm slashed its full-year profit forecast, blaming heavy discounting by rivals and weakness in key markets, including beauty products.

It warned it did not expect brutal trading conditions to abate any time soon.

Debenhams had already committed to a 20 million pounds ($26 million) cost savings programme, but said it needed to do more.

It plans to cut capital expenditure from about 140 million pounds in 2018 to about 75-90 million pounds in 2019 and has launched a strategic review of non-core assets.

Chief Financial Officer Matt Smith told reporters the six-store Magasin du Nord chain in Denmark, which made core earnings of 27 million pounds in 2017, had been identified for possible disposal, as had the firm’s small printing business Magenta Print.

Debenhams bought Magasin du Nord for 12.3 million pounds in 2009. Smith declined to say if any offers had been made for the chain.

Related Stories

Debenhams is now forecasting a pretax profit for the 2018 financial year of 35-40 million pounds compared with previous market expectations of 50.3 million pounds.

It said trading in May and early June had been below plan despite weak comparative numbers. Group like-for-like sales fell 1.7 percent in the 15 weeks to June 16.

‘Exceptionally difficult’

“It is well-documented that these are exceptionally difficult times in UK retail, and our trading performance in this quarter reflects that,” said Chief Executive Sergio Bucher.

“We don’t see these conditions changing in the near future and, because it is our priority to maintain a robust balance sheet, we are making very careful choices about how we deploy capital.”

Already this year, Toys R Us UK, Maplin, Conviviality and Poundworld have collapsed, while Marks & Spencer, New Look, Carpetright, Mothercare are also closing stores.

Debenhams forecast year-end net debt of about 320 million pounds, in line with previous guidance. It expects net debt to fall from this figure in 2019.

Bucher, a former Amazon and Inditex executive who joined Debenhams in 2016, is over a year into a turnaround plan focused on closing up to 10 stores, downsizing 30 others, cutting promotions and improving online service.

But some analysts are wary of buying into the stock, even at the current historically low levels, given the challenges.

“We continue to see Debenhams as a value trap,” said analysts at Liberum reiterating their “sell” stance and lowering their price target to 10 pence from 15 pence.

Analysts at Peel Hunt, who are also sellers, said they expected Debenhams to stop paying a dividend.

At 0918 GMT, Debenhams shares were down 1 pence at 18.6 pence, valuing the business at around 230 million pounds.

($1 = 0.7547 pounds) (Editing by Paul Sandle and Mark Potter)