Debenhams warns of 26pc fall in profits

Shares in the department store chain fell as much as 13 per cent as the trading update sparked market jitters over the rest of the retail sector, prompting a sell-off among a clutch of other big-name brands.

Debenhams said the failure to entice a rush of shoppers in the days leading up to Christmas meant more reductions were on the way in the new year, while trading conditions are expected to remain “highly competitive”.

Pre-tax profits for the first half of its financial year are now expected to fall to £85m from £114.7m the year before, after discounting ate into a paper-thin 0.1 per cent like-for-like sales increase for the 17 weeks to December 28.

The group said: “We did not experience the anticipated final surge in sales in the last week of the period and as a result we expect the need for additional markdown to clear stock in January and February.”

Retailers embarked on an unprecedented level of promotional activity over the period as they fought over a declining number of high street customers amid continued pressure on household incomes, Debenhams said.

It also blamed bad weather for having an impact on clothing sales, which fell over the 17-week period.

Beauty, home and gifts improved and online sales grew 17 per cent but delivery income was lower than anticipated.

Debenhams said gross margin was down over the period “due to product category mix and higher markdown”.