Debenhams issue second profit warning to share holders

The chief exec of Debenhams has warned that because of the savage price cuts his firm made over the Christmas period his company’s profits for the first six months of its financial year could be as much as 25% down on their forecast. Issuing such a massive profit warning for 2014 on New Year’s Day must be worrying for the department store’s shareholders.

The trading update was an unscheduled one and it just confirms the poor Christmas sales that all traders experienced. On the run-up to the big day retailers were expecting that a mid-week Christmas Day would mean massive panic buying on the weekend before but that wasn’t the case. For most retailers the weekend wasn’t as successful as hoped so prices were slashed further for the 23rd and 24th of December.

Debenhams are now predicting that pre-tax profits for the first six months of 2014 will be around £85million, which is nearly 25% less than the city forecast of £110million. With the firm’s financial year ending in February there’s very little time for the retail chain to turn things around. The firm’s share price has fallen by 12% as a result of the poor trading which has taken £124million from the company’s value.

Problems with high street trading over the festive period has lead other retailers to lose value on the stock exchange. Sainsbury’s share price dropped by 2% and Marks and Spencer’s value also fell an equal amount.

Debenham’s profit warning was the second one that they’ve issued in the last 12 months which will put pressure of Michael Sharp, the firm’s chief exec. He’s already said that the firm’s strategy for this financial year was not “fundamentally flawed”. Instead he’s blamed weakening consumer confidence and discount wars between retailers.

Debenhams shoppers can now look forward to even more sales as the retailer will be slashing prices by as much as 70% in an effort to offload winter clothing that still remains unsold. Their shareholders though don’t have as much good news to start the New Year with.

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