Debenhams issues profits warning

Debenhams, which recently revealed that it has started on a programme of warehouse automation, has warned that pre-tax profit will be up to £15m less than expected for the current financial year.

In a trading update for the 41 weeks to 16th June, it said: “Against a background of increased competitor discounting and weakness in key markets, trading in May and early June has been below plan despite weak comparatives.

“We have reassessed our expectations for the balance of the year and now expect pre-tax profit for FY2018 to be in the range of £35m-£40m, with EBITDA in the range £160-£165m. This compares with current market PBT consensus of £50.3m.”

It said it was continuing to focus on five priority areas to mitigate market conditions including  accelerating cost-reduction activity to underpin announced annualised savings of £20m and a new leaner operating model to “unlock further opportunity to drive efficiencies in the future”.

It is looking for above-market digital sales growth, changing the in-store experience for customers, revitalising its fashion product under new leadership, and sustaining leadership in Beauty.

In April, the retailer revealed that it had activated the first stage in the automation of its distribution centres as part of a new operating model. It has been rolling out direct-to-floor distribution, and it said certain stores are now receiving their deliveries fully sorted by division, making processing and floor replenishment in stores much more effective, it said in its first half results.

In the latest trading update chief executive Sergio Bucher said: “It is well-documented that these are exceptionally difficult times in UK retail, and our trading performance in this quarter reflects that. 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.

“We see clear evidence of progress as our digital growth outperforms the market and customers respond positively to our product improvements and format trials. We have also put in place a leaner operational structure and made a number of important hires so that we are well-equipped to navigate the market turbulence.”