Department store chain Debenhams PLC (LON:DEB) reported a drop in sales in the 17 weeks to December 30, blaming tough competition and a volatile market.
Shares slumped more than 21% to 28p in morning trading.
READ: Debenhams battered by Liberum rating downgrade, cautious trading update from high street peer Next
Total like-for-like (LFL) sales fell 1.8% at constant currency, reflecting a weak performance in the UK, where LFL sales decreased 2.6%. That compares to a 0.4% increase in group LFL sales the same period a year ago.
UK retailers have been hurt by a slowdown in consumer spending as a result of higher inflation eating away at disposable incomes.
Poor retail sales at Debenhams in the UK offset a 2.1% LFL increase in international sales and 9.9% growth in digital.
The group offered promotions over the six-week Christmas period to lure in customers, boosting LFL sales by 1.2% at constant currency and digital sales by 15.1%.
However, the first week of post-Christmas sales was below expectations despite further markdowns.
Debenhams expects first half gross margins to fall by 150 basis points on the same period last year due to the increased promotional activity.
"The market has been challenging and particularly promotional in some of our key seasonal categories and we have responded in order to remain competitive for our customers, which has impacted our profit performance,” said chief executive Sergio Bucher.
In response to weaker margins, the group has identified annual cost savings of £20mln, of which £10mln will be realised in the second half.
READ: Debenhams getting to grips with digital
The company now expects costs for fiscal year 2018 to meet the lower end of its previous guidance range of 1% to 2% growth.
It predicts pre-tax profit of £55mln to £65mln for the year, compared to analysts' expectations of £83mln. Last year the company reported full year pre-tax profit of £59mln on a reported basis and £95mln on an adjusted basis.
Liberum repeated a 'sell' rating on the stock and cut the target price to 25p from 40p, saying: "Christmas trading is below expectations, which coupled with a significant decline in gross margin, leads to a 35% downgrade in our FY2018 pre-tax profit."
The broker added: "Our new forecasts of £52.1mln is below guidance of £55mln-65mln PBT for 2018 and whilst the dividend per share remains covered by earnings it is uncovered by free cash flow. Ongoing structural challenges, a soft consumer environment, rising costs and increasing capex demands make for a difficult outlook, in our view."