Around £175 million has been wiped off the value of Debenhams after the retailer blamed the cold spell at the turn of the year for a profits warning.
Shares slumped almost 15% during the day as the retailer which has outlets in Dundee, Perth, Dunfermline and Kirkcaldy said operations had been “severely disrupted” by the snow that fell across the UK in mid to late January.
Like-for-like sales in the 26 weeks to March 2 increased 3% year-on-year, but the firm reported a 10% slump in sales between January 14 and 27.
Debenhams said it expects the disruption will result in first-half profits of around the £120m mark, some £10m behind original City forecasts which projected the firm would hit closer to £130m.
Investors took fright at the warning yesterday and the retailer’s shares closed 14.7% lower at 80.7p.
The company said it had taken steps to ameliorate the poor January figures and was confident about its position going forward.
“To recover sales lost due to snow, we introduced additional promotional events in February focused on Valentine’s Day, half-term and the month end,” the firm said in a trading statement.
“Although these events did drive some incremental sales, they did not fully recover those lost in January.”
The statement added that sales generated were mainly in lower-margin clearance lines, which undermined the overall level of gross margin for the first half of the year.
However, the firm maintained second-half forecasts were “robust” and said with stock now at “planned levels” it fully expects sales would continue to grow as expected.
Debenhams chief executive Michael Sharp said: “While the impact of the snow on the first half is disappointing, it is now behind us and sales volumes have recovered. We are confident in our spring/summer ranges and that we can grow sales in the second half.
“Our strategy to build a leading international, multi-channel brand remains on track.”
Jean Roache, analyst at Panmure Gordon, warned the latest figures followed “a disappointing margin performance over the Christmas trading period”.
“(The) statement also guides first-half profit before tax to £120m against £128.5m last year and consensus £128-£130m,” she added.
“The reason given is that snow between January 14 and 27 caused UK like-for-likes to fall 10%, and that to recover these sales additional promotional activity was necessary during February.
“Consensus profit before tax is likely to come down by around 6%; our forecast moves to £156.4m from £166.4m.”
Kate Calvert, of Seymour Pierce, added: “This is the second downgrade on Debenhams this year, which starts to raise questions about its strategy and the sustainability of its UK profits short term.
“Debenhams has limited space growth over the next 18 months and the Oxford Street refurbishment costs to carry.
“To become more positive, we need evidence of stable UK profits,” she said.
In January the retailer revealed a multi-million-pound makeover of its store at the Overgate in Dundee. The work is scheduled for completion in the summer.
business@thecourier.co.uk