LONDON – Debenhams is expecting pre-tax profit to fall short of projections for fiscal 2018, and has said the tough retail climate is to blame. It is the company’s third profit warning this year.
On Tuesday, the British department store chain said it had “reassessed” its expectations for the balance of the year, and now expects pre-tax profit to be in the range of 35 million pounds to 40 million pounds. Current market consensus is 50.3 million pounds.
EBITDA, or earnings before interest, taxes, depreciation and amortization, will be in the range of 160 million pounds to 165 million pounds.
The company said the downgrade comes against a background of “increased competitor discounting and weakness in key markets.” It added that trading in May and early June has been below plan, despite weak comparatives.
The company also emphasized that it’s exploring further cost opportunities beyond those already announced, and focusing on self-help and prioritizing cash generation. In addition, it is looking to strengthen its balance sheet further with a material reduction in 2019 capital expenditure.
“As a result we expect net debt to be lower in FY2019 than in FY2018. We also intend to conduct a strategic review of non-core assets, aiming to focus investment behind our strategy,” the company said in a trading update.
“It is well-documented that these are exceptionally difficult times in U.K. retail, and our trading performance in this quarter reflects that,” said chief executive officer Sergio Bucher, pointing to group like-for-like sales growth of 1.7 percent in the 15 weeks to June 16.
“We don’t see these conditions changing in the near future and, because it is our priority to maintain a robust balance sheet, we are making very careful choices about how we deploy capital. We see clear evidence of progress, as our digital growth outperforms the market and customers respond positively to our product improvements and format trials. We have also put in place a leaner operational structure and made a number of important hires so that we are well-equipped to navigate the market turbulence.”
The company said it hopes to mitigate current market conditions and drive progress in 2019 by delivering strong digital sales growth, with a focus on mobile, and sustain leadership in beauty through innovative customer engagement both in-store and online. It is also looking to broaden its brand offer in smaller stores, and freshen up the longstanding Designers at Debenhams program, with hot London labels such as Preen by Thornton Bregazzi and Richard Quinn.
The retailer is also ramping up the in-store experience for customers through a re-designed service model and store presentation and has been slashing costs in a bid to achieve annualized savings of 20 million pounds and create a new, leaner operating model.