Debenhams has slashed profit expectations for the third time this year after ‘increased competitor discounting and weakness in key markets’ knocked sales in May and early June.
This resulted in ‘below plan’ trading for the 15 weeks to June 16, on the back of already weak numbers.
The news sent its shares reeling, falling by 16 per cent as the market opened.
Debenhams quarterly sales have been hit by rivals, such as House of Fraser, ramping up promotional activity in a bid to woo back shoppers
The department store retailer now expects full-year pre-tax profits to come in between £35million and £40million, down from previous estimates of £50.3million.
It means further cost cuts are on the horizon, which Debenhams says will be focused on ‘self-help and prioritising cash generation’.
The retailer said it would consider selling off some non-core assets too in order to further shore up the balance sheet.
The fresh profit warning comes as the retailer’s main rival House of Fraser issued a proposal to shutter 31 of its stores, which will lead to the loss of thousands of jobs.
Debenhams blamed its competitors’ heavy discounting for a 2.2 per cent fall in like-for-like sales in the quarter, as the department store chains fight to woo back shoppers.
It adds to the sense of gloom on the high street as retailers’ margins are squeezed by rising wage costs and business rates.
The issue is exacerbated by falling shopper numbers and volatile consumer confidence.
Just last week, Poundworld hit the buffers, while New Look, Mothercare, M&S and Carpetright are closing stores.
Debenhams stopped short of announcing store closures today but, as previously reported, it is still assessing whether to dispose of 10 of its outlets over the next five years.
The retailer said it will consider reducing the footprint of up to 30 of its stores.
It is also hoping to axe the rent bill when, over the next five years, 25 of its leases come up for renewal.
Chief executive Sergio Bucher said: ‘It is well-documented that these are exceptionally difficult times in UK retail and our trading performance in this quarter reflects that.
‘We don’t see these conditions changing in the near future and, because it is our priority to maintain a robust balance sheet, we are making very careful choices about how we deploy capital.’
Debenhams chief executive Sergio Bucher promised today to show ‘real evidence of progress’ by the retailer’s next planned results in October
However, the retail boss said he was seeing ‘clear evidence of progress’ in online sales.
‘We have also put in place a leaner operational structure and made a number of important hires so that we are well-equipped to navigate the market turbulence,’ he insisted.
Head of Markets at interactive investor, Richard Hunter, said: ‘The latest instalment of retail suffering comes from Debenhams, where the fear remains that the train has left the station.
‘Trading remains under plan for the period despite weak comparatives. Gross margin is flatlining, whilst debt is increasing as the company attempts some form of retail resuscitation.
‘Meanwhile, stronger competitors are edging further ahead, and this profit warning adds to Debenhams’ recent litany of woes.
‘Highlights are few and far between – the growth in the online business of 16 per cent is notable, even though this remains a smaller part of revenues.
‘The revamp of stores and product lines may improve the situation in due course, whilst next year’s reduction in capital expenditure should at least improve the debt situation.’
Before today’s plunge, Debenhams’ shares had lost 57 per cent over the last year.