Debenhams to cut back promotions after profit drop

Tue Apr 15, 2014 6:22am EDT
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By Neil Maidment

LONDON (Reuters) - Britain's No.2 department store operator, Debenhams (DEB.L: Quote), said it would cut back on criticized promotions, improve its online business and boost ranges with retailer tie-ups to try to reverse a slide in profits.

The firm has endured a tough 12 months, issuing its second profit warning in less than a year in December and losing its finance chief after a long-held strategy of slashing prices failed to boost its crucial Christmas sales.

Chief Executive Michael Sharp told reporters on Tuesday a raft of accelerated changes would improve business, although he remained cautious on the strength of a consumer recovery in the UK, where it makes more than four fifths of sales.

"Customers haven't fallen out of love with Debenhams. They still love the brand. The product proposition is still very strong, and that's where we'll concentrate," Sharp said.

Debenhams shares, which have fallen 27 percent from six months ago, were up 5 percent to 81.50 pence at 0707 ET.

Signaling the changes would take time to work, Debenhams said its gross margin for the year to August would fall by 50-70 basis points. Investec analyst Kate Calvert downgraded her full-year profit forecast by 4 percent to 110.2 million pounds.

"We are unconvinced there is a quick fix and believe the investment needed will hold back profits, though we can see a small bounce in FY15 profits from lower markdown," said Calvert, who rates Debenhams a "sell".

Across Europe, retailers are battling to attract shoppers as disposable incomes are squeezed by subdued wage growth and austerity measures.   Continued...

People walk past Debenhams department store on Oxford Street, in central London, January 10th 2011. REUTERS/Ki Price