Retailer’s profits feeling under the weather

The UK’s second largest store chain after John Lewis said profits in the first half of its 2012-13 year are likely to come in about eight per cent below forecasts after a blanket of snow hit sales.

It expects pre-tax profits for the 26 weeks to March 2 to be around £120m, against £128.5m a year earlier and analysts’ forecasts of £131m.

Underlying revenues were 10 per cent lower in the snow-affected period between January 14 and 27, compared with a five per cent rise over Christmas and New Year.

Debenhams held promotional events during February in a bid to recover the lost sales, introducing special promotions focused on Valentine’s Day, the school half-term holiday and the month end.

These drove incremental sales, but did not fully recover those lost to the snow and came at a cost to profit margins.

Chief executive Michael Sharp said he is confident that the group’s spring and summer ranges will put the chain back on track.

“Whilst the impact of the snow on the outcome for the first half is disappointing, it is now behind us and sales volumes have recovered,” he said.

“What you have to remember is that the snow fell across the whole country. The trading period that was disrupted was smack bang in the middle of the January sale and it covered the month end of January which is a strong trading period.”

The group said it was trading well in January before the first significant fall of snow in almost a year hit the country.

Sales at stores open over a year grew by about three per cent in the 26 weeks to March 2.

Debenhams said gross margin for the first half will be about 20 basis points lower than last year, while for the full-year it is more likely to be flat, rather than the 10 basis points increase tipped in the firm’s January 8 update.

Weekly data from rival John Lewis showed it coped much better with the snow, recording total sales rises of 6.7 per cent and 9.8 per cent in the weeks to January 19 and January 26 respectively.

Sanjay Vidyarthi, analyst at Espirito Santo Investment Bank, said: “Our sense had been that weekly volatility has been a fact of life and that, with Christmas and the early part of the January sales out of the way, the sector would navigate the snow without profit warnings.

“There will clearly be read-across to others, Marks & Spencer in particular. We sense that M&S will have continued to have lost market share but possibly held margins.”

Mr Sharp said Debenhams was hit harder as its 150 stores are nationwide, whereas John Lewis is biased towards the south east.

Debenhams, which has stores in Leeds, York, Sheffield, Harrogate, Doncaster, Scarborough, Hull and Wakefield, has announced plans to open another 17 UK stores over the next five years.

The new stores will include Beverley, Scunthorpe, Cheshire Oaks, Fort Kinnaird, Wandsworth, Darlington, Shrewsbury and Newport.

Debenhams is more dependent on stores sales than John Lewis which has a bigger online service. Debenhams’ stores provide 88 per cent of total sales, while John Lewis’s make up about 75 per cent of sales

Mr Sharp said Debenhams won market share in the first half and expects sales to grow in the second half, on the back of the strong spring/summer collection and the benefits of refurbished stores coming through.

“We’re in good shape, I’m absolutely clear that the issue that’s affected us is directly attributable to snow,” he said.

Debenhams maintained its full-year guidance on costs, capex, dividends and its share buyback programme.

The group’s shares, which were up 28 per cent over the last year before yesterday’s profit warning, closed down 15 per cent yesterday, a fall of 14p to 80.7p.

Panmure Gordon analyst Jean Roche cut her full year pre-tax profit forecast to £156.4m from £166.4m and her price target to 104p from 112p.

“Debenhams has produced an unscheduled first half trading update, taking estimated full year 2013 gross margin guidance to flat versus up 10bp guided previously,” she said.

“This follows disappointing margin performance over the Christmas trading per- iod.”

[email protected]