Debenhams PLC (LON:DEB) was hit by challenging trading conditions in the New Year as the department store saw sales growth down by almost two thirds in the 15 weeks to June.
In the third quarter, the group saw total sales growth of 0.5%, down from the 1.6% seen at the end of the first half. The slowdown has been attributed to difficult trading in clothing this Spring which hit margins.
In response to more uncertain trading conditions particularly in clothing, the group has made progress in pushing its non-clothing range, such as health and beauty and its food offering. Health and beauty sales in particular showed good growth in the period, said the group.
“The UK trading environment has been weaker since the new year, particularly in clothing, and our strategy to increase the mix of non-clothing sales has supported our performance against this background.”
However online sales grew 7% in the period, cumulative growth for that year was over 9%. Mobile represented 50% of all UK online orders and strong growth in click and collect, up 19% year-on-year.
Out-going chief executive Michael Sharp said he was leaving the business in the hands of a strong management team, ready for Sergio Bucher to take over this Friday.
“Our wide product choice, clear destination departments and improving service proposition gives us a strong platform from which to deliver long term sustainable growth,” said Bucher.
2016 is expected to be within the range of market forecasts, he added.
“In response to a more volatile trading environment, we are keeping costs tight, managing margin and driving cash generation,” said the group.
In preparation for the Christmas season, the group is embarking on a space optimisation programme, looking to fill 75% of 1mln sp ft by December.
The group plans to roll-out an additional 30 food offers by October, meaning around 40% of stores will have a new food offer by Christmas.
Analysts at Liberum expect shares to underperform the sector on these numbers, however.
The broker was less than optimistic and is currently reviewing its full year estimates for the group.
Although sales were in line with expectations, the news on margins was disappointing, said Cantor Fitzgerald.
"It had to respond to more challenging conditions, possibly including the demise of BHS and the poor weather, particularly in April," reasoned the broker.
Ahead of incoming Sergio Bucher, analysts said: “as we saw recently at M&S a change of management can lead to a lowering of expectations.”
Shares were down almost 5% to 70.55p.
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