Debenhams Clashes With Next Over Promotions as Margin Goal Cut

Debenhams Plc (DEB), the second-largest U.K. department-store chain, opposed a claim by competitor Next Plc (NXT) that Christmas discounting was less than last year as it cut its forecast for full-year margin growth.

Next, the U.K.’s second-largest clothing retailer, was wrong to say last week that stores offered fewer promotions over the holiday, Debenhams Chief Executive Officer Michael Sharp said on a conference call today, adding that Christmas was the most competitive in his 37 years in the business.

“I think they need to get out a bit more is the honest answer,” Sharp said on the call. “I know that the high street was more promotional because I was out every day at the Christmas period in all my competitors’ shops. It’s quite plain that the market was more promotional than last year, all our major competitors were doing non-like-for-like promotional activity and Next are wrong, factually incorrect.”

Debenhams said today that gross margin will widen 0.1 percentage point this fiscal year, down from a previous target for a 0.2 percentage-point increase, as it offered more discounts to gain shoppers at the busiest time of the year. Next said last week that full-year profit would at least be at the higher end of its forecast after Christmas sales beat estimates.

Debenhams stock fell as much as 6.8 percent to 109.2 pence, the most since August 2011. The reduced margin guidance for the year through August is equivalent to 3 million pounds ($4.8 million) of profit and nullifies a stronger sales performance, Seymour Pierce analyst Kate Calvert said in a note.

Sales Gain

Debenhams said revenue at stores open at least a year rose 2.9 percent in the 18 weeks ended Jan. 5, led by a 39 percent increase in online sales. The overall increase beat the 2.3 percent median estimate of 11 analysts compiled by Bloomberg.

December sales were a record for the retailer, rising 5 percent on a same-store basis in the five weeks ended Jan. 5.

In addition to planned holiday events such as a six-day “Christmas Spectacular,” Debenhams offered “wow” promotions such as 50 percent off the price of particular products for one day only. The policy worked as the retailer increased its market share in womenswear, health and beauty, Sharp said.

The British Retail Consortium said today that the overall level of holiday discounting was about the same as the previous year, though the depth of promotions was shallower as retailers planned more cautiously and had less inventory.

Debenhams said the growth of online sales means warehousing and distribution costs for the year will rise to about 3.5 percent of sales, up from a previous forecast of 3.2 percent.

Sharp said he doesn’t anticipate “a significant change in consumer confidence in the remainder of the year.”

U.K. shopper sentiment fell in December as optimism about the outlook for the economy plunged, according to GfK NOP Ltd., while food and fuel inflation is weighing on household budgets.

Debenhams was down 6.2 percent at 109.8 pence as of 9:54 a.m. in London trading. Next gained 0.1 percent to 3,895 pence.

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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