Latest earnings warning deepens a UK retail crisis that has claimed long-time fixtures of the country’s shopping streets
UK retailer Debenhams' shares plunge as profit outlook cut again
UK department-store owner Debenhams plunged as much as 20 per cent after the firm, struggling to compete with online rivals, cut its profit forecast for the third time this year and reined in spending on turnaround efforts.
The latest warning deepens a UK retail crisis that has claimed long-time fixtures of the country’s shopping streets such as BHS and prompted House of Fraser and Marks & Spencer to shut dozens of stores. They’re being squeezed by the rise of Amazon and online apparel seller Asos, with bargain hunters turning to discount clothing chains such as Primark as the UK’s departure from the European Union squeezes spending power.
“We have seen that the situation in the UK has really weakened,” Debenhams chief executive Sergio Bucher said. “When you look at key components of our business, clothing has been losing and footwear has been shrinking,” while the beauty business has seen a slowdown in its make-up arm despite an improvement in skincare.
While the company’s e-commerce business is growing, Debenhams is playing catch-up to more digital-focused rivals. Nearly one-fifth of the country’s retail sales have shifted online, leaving Debenhams’ brick-and-mortar profits stuck in a long-term decline. The company expects a pretax profit of £35 million (Dh169.4m) to £40m, compared with a market consensus of £50.3m.
Debenhams shares were down 8.1 per cent at 9.35am in London, dragging the company’s market value to £221m – around the lowest since the company’s initial public offering in 2006 at a valuation of almost £2 billion. Debenhams’ £200m of bonds due July 2021 fell 3 pence on the pound to 84 pence, the lowest on record, according to data compiled by Bloomberg.
Mike Ashley, chief executive of Sports Direct International, has increased his holding in Debenhams, spurring speculation he may try to buy it outright. Other views are less sanguine: hedge-fund manager Crispin Odey, whose Odey Asset Management has a short position in the retailer, has said Debenhams and House of Fraser are in a race “as to who will go down first”.
To strengthen its balance sheet, Debenhams plans to cut capital spending to a range of £75m to £90m next year, from about £140m in the current year, said chief financial officer Matt Smith, who is leaving to take up the same role at department-store operator Selfridges.
“Whilst this seems very sensible to us, being so capital constrained clearly makes it much more difficult for management to deliver on its transformation plans,” Morgan Stanley analysts Geoff Ruddell and Amy Curry said in a note.
Borrowing a page from Selfridges, Mr Bucher has been trying to revamp Debenhams' stores by adding cafes and other attractions that are intended to keep shoppers around longer. But many shoppers just want the lowest prices – and are finding those online or at discount rivals.
Debenhams said it’s reviewing non-core assets, including its Magasin du Nord stores in Denmark.
It’s also in talks to rent out excess space in its flagship London department store to flexible-office provider WeWork, people with knowledge of the matter said earlier this year.