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Debenhams drops on weak Christmas but on track to deliver current year profits in line with expectations

For the 18 weeks to 5 January, the group added, its like-for-like sales were down 5.7%, with UK sales dropping 6.2%, while International fell 3.5%
Debenhams stores
Debnhams said weak store footfall was offset by growth in digital sales which saw growth of 4.6% across the 18 week period

Debenhams PLC (LON:DEB) shares dropped on Thursday after it posted weak Christmas sales, although the retailer said it is currently on track to deliver current year profits in line with market expectations, despite a challenging market backdrop, and added that constructive discussions with its lenders have commenced.

In a trading update, the debt-laden department stores operator said group like-for-like sales for the 6 weeks to 5 January fell by 3.4%, with UK sales down 3.6%,

READ: Debenhams turned down £40mln loan offer from Mike Ashley’s Sports Direct - media report

For the 18 weeks to 5 January, the group added, its like-for-like sales were down 5.7%, with UK sales dropping 6.2%, while International fell 3.5%.

The retailer said weak store footfall was offset by growth in digital sales which saw growth of 4.6% across the 18 week period

It added that, after a slow start to the season, group digital sales rose 6.0% in the 6 week period over peak against a strong comparative performance, delivering two-year growth of over 20%.

Cash still being generated

Debenhams pointed out that it continues to generate cash, with its net debt as at 5 January standing at £286mln, within the context of its total committed debt facilities of £520mln.

The group added that, in light of the requirement to refinance existing bank facilities within the next 12 months, constructive discussions have commenced with lenders, and the group has put on hold any further asset disposals until the outcome of those discussions is known.

It said this process “includes options to bring new sources of funding into the business to ensure the appropriate capital structure.”

Sergio Bucher, chief executive of Debenhams, commented: "We have worked hard to deliver the best possible outcome in very uncertain times for retailers.

“We responded to a significant increase in promotional activity in the market, particularly in key seasonal categories, in order to remain competitive for our customers.”

He concluded: “In order to ensure that Debenhams has a sustainable and profitable future we need a strong customer proposition, a strengthened balance sheet and a reshaped store portfolio.”

The company said that it sees previously announced cost savings of an annualised £50mln, rising to at least £80mln taking into account additional opportunities identified.

Ashley offer spurned

Back in December, it was revealed that Debenhams had turned down the offer of a £40mln loan from Mike Ashley’s Sports Direct International PLC (LON:SPD) made in a letter from the billionaire published by the Daily Telegraph.

The letter, addressed to Debenhams CEO Sergio Bucher, suggests without the money the retailer "has zero chance of survival". Ashley also said he is frustrated Debenhams doesn't want his "help" but wasn't surprised "by the predictable negative response".

Sports Direct which owns a near 30% stake in the struggling department stores group acquired its collapsed rival House of Fraser earlier this year, and talk has inevitably suggested a link-up between the two retailers.

But shares reverse

After starting higher, Debenhams shares swiftly dropped back as analysts remained unimpressed.

Laith Khalaf, senior analyst at Hargreaves Lansdown commented: “Debenhams is really under the cosh with a heavy fall in sales, and its margin will take a hit too because it’s been forced into cutting prices to attract bargain hunters.”

He added; “The department store says it remains on track to deliver profits in line with market expectations, but it’s still early days in Debenhams’ financial year, and it looks like cost-cutting is going to be front and centre of keeping profits above the watermark.“

In early morning trading, Debenhams shares were 4.1% lower at 5.42p, having reached a session peak of 5.97p.

 -- Adds share price, analyst comment --

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