More retail distress
Department store Debenhams issued a profit warning today for the third time in six months due to poor trading on increased competitor discounting and weakness in key markets.
The firm said it is now forecasting a pretax profit for the 2018 financial year of £35-40m compared to current market expectations of £50.3m.
“It is well-documented that these are exceptionally difficult times in UK retail, and our trading performance in this quarter reflects that,” said Chief Executive Sergio Bucher.
“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.”
Richard Lim, Chief Executive, Retail Economics said: “These results build on the pessimistic outlook for UK retail. It’s clear that the business is battening down the hatches, strengthening its balance sheets and preparing for tough times ahead.
“We’ve seen a slew of bad news this year and the acceleration of structural changes is taking its toll on department stores who are burdened by significant fixed costs. Shackled by too much space, inflexible leases and, in some cases, too much debt, the race is on to execute a shift in business models quickly enough to keep up with changing market conditions.
“Concerns about overcapacity is at the heart of the challenge for many retailers. Debenhams, along with many others, will need to push forward right-sizing initiatives and form strategic partnerships with other third parties to sweat assets more effectively in a move become fit-for-purpose in today’s digital age.”