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FTSE hits high but glum Christmas sinks Debenhams

FTSE marks new all-time high in opening minutes of trading while Debenhams slumps on fresh profit warning.

 
FTSE hits high but glum Christmas sinks Debenhams
 

Shares in Debenhams (DEB) have tumbled after the department store operator was forced to slash annual profit forecasts following a difficult Christmas period that saw it forced into price cuts.

The shares slumped 16.1% to 29.6p, falling to the bottom of the FTSE Small Cap index, as the retailer warned 2018 profits could fall as low as £55 million, down from £95 million last year and well below the £83 million investors has been expecting, according to Reuters.

Group like-for-like sales fell 1.8% in the 17 weeks to 30 December, while price cuts over the period in the face of fierce competition is likely to lead to 150 basis points fall in margins over the first half of its financial year.

Debenhams said that after a disappointing start to the quarter, it cut prices, helping to improve performance over the six-week Christmas period. It then cut prices again in the post-Christmas sale, but sales still failed to meet expectations.

'The market has been challenging and particularly promotional in some of our key seasonal categories and we have responded to remain competitive for our customers, which has improved our profit performance,' said chief executive Sergio Bucher.

Analysts at Liberum, who rate the shares a 'sell', cut their target price from 40p to 25p on the news, forecasting just £52.1 million of profit for the year.

'Ongoing structural challenges, a soft consumer environment, rising costs and increasing capital expenditure demands makes for a difficult outlook, in our view,' they said.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said the news would raise fresh fears over the plight of the UK retail sector, despite a well-received update from Next (NXT) yesterday.

'On Wednesday Next's trading update hinted that the retail environment might not be as bad as feared, though the latest announcement from Debenhams illustrates the dangers of drawing too many conclusions from a sample of one,' he said.

'By this time next week we should have a much better idea of how the retail industry and the UK consumer is doing, with the likes of Marks and Spencer (MKS), John Lewis, Tesco (TSCO) and Sainsbury's (SBRY) handing in their Christmas scorecards.'

The FTSE 100 meanwhile reached a new all-time high in the morning's trading, hitting 7,696 in the opening minutes of trading before falling back to 7,680, up nine points on the day.

Marks and Spencer fell to the bottom of the index, down 2.6% at 312.3p, as Debenhams' warning sparked jitters for the retail sector.

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