Debenhams Hit by New Profit Setback as Snow Weighs on Sales

Debenhams Plc, the U.K.’s second-biggest department-store company, said fiscal first-half profit will miss estimates after January snowfall hurt sales and caused the retailer to offer deeper discounts to shift inventory.

Pretax profit will fall to about 120 million pounds ($180 million), from 127.1 million pounds a year earlier, the London-based company said today in an unscheduled statement. Cantor Fitzgerald analysts had estimated earnings of 131 million pounds. The stock fell 15 percent to 80.7 pence in London, the steepest decline in more than four years.

It’s the second profit setback this year for Debenhams, which has lowered prices to boost flagging revenue. Chief Executive Officer Michael Sharp told Bloomberg News that snow at the end of the January sales forced the retailer to add discounts and promotions into February to clear products in a period that is usually focused on new-season ranges.

“Although the snow will have proved disruptive, the wider problem was that it gave already cautious consumers another excuse not to spend,” said Matt Piner, an analyst at Conlumino market researcher in London.

The share price decline was the steepest since Nov. 19, 2008 and cut the company’s market valuation to about 1 billion pounds. Trading volume was 53.5 million shares, about nine times the three-month daily average.

Mindset Change

“It’s very difficult in February to continue to sell autumn-winter product,” Sharp said by phone. “We all know that January sales are about buying winter product at discount, and February is a change in mindset, a new wardrobe, a new season.”

Gross profit as a percentage of sales will now probably be unchanged for the year, said the retailer, which in January cut the forecast to a gain of 0.1 percentage point from 0.2 point.

Same-store sales slid by 10 percent from Jan. 14 to Jan. 27, a pace of decline which Sharp said he hasn’t seen before. Promotional sales after that didn’t fully recover the revenue lost, the company said. Still, Sharp said he didn’t think consumers were becoming more price sensitive, given full-priced sales at the end of the period, adding the retailer gained 0.1 percentage points of market share in clothing in the 24 weeks ended January, and 0.2 percentage points in womenswear.

Disappointing Impact

While the impact of the snow is “disappointing, it is now behind us and sales volumes have recovered,” Sharp said in the statement. “We can grow sales in the second half.”

Total same-store sales rose about 3 percent in the 26 weeks through March 2, Debenhams said. The company said it will report full results on April 18.

The announcement “starts to raise questions about its strategy and the sustainability of profit short-term,” Kate Calvert, an analyst at Cantor Fitzgerald, said in a note. She has a reduce rating on the stock.

The retailer’s Irish business remains “very tough,” Sharp said, while Danish unit Magasin du Nord is “very strong” as the Scandinavian nation handles snowy weather better.

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