22nd Jun 2016 07:44
LONDON (Alliance News) - Department store retailer Debenhams PLC on Wednesday trimmed its gross margin guidance for the full year amid a slowdown in like-for-like sales and tough trading conditions in the UK since the turn of the year, though it affirmed it anticipates meeting market expectations for annual pretax profit.
Debenhams shares were down 5.3% to 70.35 pence early Wednesday.
The group revised its gross margin guidance for the full year down to flat, having previously guided to a flat-to-50 basis point expansion for the year. Debenhams said the slight downgrade to the margin guidance had been driven by a "tactical response" taken to more challenging trading conditions which have emerged in the second half of its financial year, ending in August.
Despite the margin guidance cut, Debenhams said tight operating cost control and good cash generation will mean the group stays on track to meet market expectations for pretax profit.
Cost growth is anticipated to be at the lower end of previous guidance, Debenhams said, including the effect of the introduction of the National Living Wage in the UK, an effective minimum wage for workers over 25.
Gross transaction values in the 15 weeks to June 11 grew 0.5% year-on-year, while like-for-like sales in the period declined 0.2%. Online sales grew 7.0% year-on-year. Group constant currency like-for-like sales were down 1.6%.
Gross transaction values for the 41 weeks to June 11 grew 1.3% year-on-year, Debenhams said, while like-for-like sales have grown 0.7%, indicating a slowdown in the most recent trading period.
Debenhams said the trading environment in the UK has been weaker since the turn of the year, particularly for clothing. A push by the group to increase its non-clothing sales has helped to offset this in terms of total sales, with particularly good growth in health and beauty sales.
International trading has been mixed, Debenhams said, though the foreign exchange impact on sales has turned positive in the latest trading period.
The group said its strategic priorities remain unchanged, with a focus on keeping costs tight, managing margins and generating cash. Tight stock control across all divisions and lower promotional activity is also set to deliver stock levels in line with historical lows for the year, Debenhams said.
Debenhams added its space optimisation push is on track, with 75% of the 1.0 million square foot targeted in its estate to be filled by Christmas, in line with its plans. The group will roll out another 18 Jack & Jones concessions by October in its stores and will launch Claire's Accessories, a new concession holder for Debenhams, in 15 stores.
In addition, following trials of two furniture display concepts in Manchester and Gateshead, Debenhams said it will open another six for the autumn/winter season.
The retailer has moved forward with plans to increase its casual dining options in stores and is planning to open another 30 food offerings by the autumn of 2016, meaning around 40% of its stores will have new food offerings by Christmas. This will include the opening of a branch of Franca Manca, the Italian restaurant brand, at Debenhams' Westfield White City outlet in West London.
"Our strategy remains unchanged, with further progress in driving our non-clothing mix, continuing to improve service for multi-channel customers, and offering a wider choice of products and services in under-optimised space. In response to more uncertain trading conditions in this period, particularly in clothing, we have focused on managing stock and margins and generating cash," said Michael Sharp, the outgoing chief executive of Debenhams.
Sharp will be replaced by Sergio Bucher, formerly the vice-president of Amazon Fashion Europe for US e-commerce giant Amazon.com Inc.
"I am confident that I am leaving the business in the hands of a very strong management team, who will continue to execute our strategy and support our new CEO, Sergio Bucher, through the next phase of Debenhams' development," Sharp said.
By Sam Unsted; [email protected]; @SamUAtAlliance
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