UK department store chain Debenhams has finished a difficult year with a more than 3 per cent fall in sales over the Christmas and new year holiday period and has abandoned the sale of its Danish subsidiary Magasin du Nord.
Debenhams gave three profit warnings last year and its share price fell almost 90 per cent but it had hoped that a new focus on “premium” gifts would boost sales.
While there were some improvements in gift and womenswear sales, the company said on Thursday that like-for-like sales fell 3.4 per cent in the six weeks to January 5 and 5.7 per cent in the 18 weeks to that date. Shares fell 4 per cent after the figures came out and the company confirmed that it was in talks with its banks about refinancing loans that expire in 2020.
“We have worked hard to deliver the best possible outcome in very uncertain times for retailers,” said chief executive Sergio Bucher. “We responded to a significant increase in promotional activity in the market, particularly in key seasonal categories, in order to remain competitive.”
Rachel Osborne, the group’s new finance director, said that it was normal to open talks on refinancing a year ahead of loan expiry.
Asked if Mike Ashley, whose Sports Direct group owns 29 per cent of Debenhams, might be a potential source of funds, she said: “He is not one of our lenders.” In November, Mr Ashley revealed he had offered to lend Debenhams £40m or inject additional equity but had been rejected.
Pending progress on the refinancing, the company has halted asset sales. Ms Osborne said it had “become clear that the market was not recognising the value of those assets”. Analysts had once thought that the Magasin du Nord chain of department stores could be worth up to £200m — four times Debenhams’ current market value.
A “company voluntary arrangement”, which would allow Debenhams to cut its expensive store rental bill, remains a possibility. “We said at the time of our prelims [in October] that we were keen to talk to landlords about a mutual plan on store reductions,” Ms Osborne said. “We have seen the majority of our landlords. Discussions have been constructive but nothing is confirmed at this stage.”
The group said it was on track to deliver full-year profits that were in line with expectations. It is also promising another £30m in cost savings: a hiring freeze is already in place at its headquarters, ranges have been cut and savings made in logistics and warehousing.
Debenhams said that the UK trading environment continued to be volatile, with “clear evidence that our customers have been seeking out promotions”. It said it had reinstated some “tactical promotional activity” to attract customers and that this would cut into its margins in the first half of the year.
Online sales were a brighter spot, rising 6 per cent rise over the six-week period.
Debenhams also said it had improved its market share in womenswear, while its new gift ranges had boosted margins. Food sales grew 2 per cent over the 18-week period.