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Uncertain Trading Conditions Put Pressure on Clothing Sales at Debenhams

Debenhams, the UK’s second-largest department store chain by revenue, is having a tough time.

The retailer on Wednesday warned that gross margin for fiscal 2016 is expected to be flat, compared with previous guidance for growth between 0 and 50 basis points, reflecting its “strengthened promotional stance” in “tactical response to more challenging trading conditions.”

“The UK trading environment has been weaker since the New Year, particularly in clothing, and our strategy to increase the mix of non?clothing sales has supported our performance against this background, with health and beauty sales in particular continuing to show good growth,” Debenhams said in a statement. “Having tightened our initial buy, we are also taking action to manage seasonal stocks, particularly in womenswear, including selected promotional activity. As a result, we expect to end the year in a clean seasonal stock position, in line with our plan.”

In the third quarter ended June 11, like-for-like sales slipped 0.2%, while online sales saw growth of 7 percent. Within its international division, the retailer said the overall performance was mixed, and noted that its Irish business should complete examinership (a process that allows a company to restructure with the approval of the court) by the end of the year.

Looking ahead, Debenhams intends to keep costs tight, manage margins and drive cash generation.

“Our strategy remains unchanged, with further progress in driving our non?clothing mix, continuing to improve service for multi?channel customers, and offering a wider choice of products and services in under-optimized space,” Michael Sharp, the outgoing chief executive officer, said.

Debenhams said it has plans in place to fill 75 percent of an identified one million square feet across its fleet with 18 concessions for Danish menswear brand Jack & Jones and 15 for Claire’s Accessories. The retailer will also increase casual dining options so that 40 percent of its stores will offer food by Christmas 2016.

The retailer currently trades out of more than 250 stores across 27 countries.