UK department store Debenhams has blamed an 85% fall in profits on the ‘Beast from the East’ cold weather phenomenon, which forced the retailer to temporarily shut almost 100 stores.
The retailer estimates the closure of the stores in the final week of the six-month period reduced its like-for-like sales by 1% in the first half, while digital sales increased by 9.7%.
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Debenhams’ like-for-like sales declined by 2.2%, or 2.8% at constant currencies, in the 26 weeks to 3 March, and its pre-tax profit declined by 84.6% to £13.5m, from £87.8m in the same period last year.
The pre-tax figure includes a charge of £28.7m for the strategic review and restructuring the company’s warehouse and logistics operation, without which the profit before tax would be £42.2m, representing a 51.9% decline. Debenhams has now lowered its expected profit before tax to the lower end of £50m to £61m, compared with £95.2 last year. The poor trading results in the first half also resulted in its share price falling by 10%.
Debenhams was not the only retailer affected by the cold weather, which struck the wider retail market. UK sales volume fell by 1.2% according to the Office for National Statistics (ONS), which was bigger than expected. Sales volumes were down by 0.5% in the first three months of 2018 compared with last year.
Debenhams chief executive Sergio Bucher said: “It has not been an easy first half and the extreme weather in the final week of the half had a material impact on our results. However, I am hugely encouraged by the progress we are making to transform Debenhams for our customers.
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By GlobalData“We are holding share in a difficult fashion market, and in other categories such as furniture, exciting new partnerships have the potential to transform our offer.
“We approach the remainder of the year mindful of the very challenging market conditions, but with confidence that we have a strong team and the right plan to navigate them and return Debenhams to profitable growth.”
Following a profit warning after poor Christmas trading, the retailer announced a new £10m cost-saving plan in January, which includes cutting 320 management jobs.
According to Debenhams, the group has strengthened its senior management team with key hires at all levels, including a new managing director of fashion and home.
Bucher said: “The UK retail environment is undergoing profound change, and with the help of some important new senior hires, we are moving faster and working harder than ever to ensure Debenhams is well-placed to outperform in this new retail world.”
According to Hargreaves Lansdown analyst Nicholas Hyett, Debenhams has been ‘totally shot to pieces’ due to heavy discounting and fall in sterling.
He said: “The Debenhams Redesigned strategy is seeing the group invest heavily to try and get itself back on an even footing, but that’s driving debt upwards, and has ultimately cost investors over half the interim dividend.
“The worry is that this is too little too late. Store improvements may get some customers back into shops, but it won’t do anything to offset the broader shift away from the High Street.”
