Debenhams expects 'challenging' period as like-for-like sales fall 5%

There were further troubles on the high street yesterday as the department store chain Debenhams warned that the consumer climate would be "more challenging" in the short term.

Retailers, already suffering from an abysmal summer, are braced for a poor performance in the run-up to Christmas as the credit crunch spreads gloom to the wider economy.

Debenhams, which has been at the centre of bid speculation since its stock market return, yesterday forecast a 5 per cent fall in like-for-like sales over the full year, but said profits would be in line with expectations of £130m.

The finance director, Chris Woodhouse, said: "It is quite difficult for the consumer at the moment, and who knows what the fall-out is going to be from what is going on in the financial markets. I certainly think it is going to be difficult for the next six to nine months."

The gross margin will fall around 90 basis points for the year, partly due to unsold stock being marked down.

Total sales for the year to 1 September increased by 5.1 per cent, boosted by four international store openings. Debenhams operates from 133 stores, with 10 more set to open this year.

Debenham's chief executive, Rob Templeman, added: "Macroeconomic factors suggest that the retail environment will be more challenging in the short term; nonetheless,we believe that the actions we have implemented across the business position us well for the new financial year."

He said that investments in store refits, improvements in design and quality of ranges, and selective price-cutting would ensure the company would remain competitive.

JJB, Sports Direct and Next have all reported slowing sales due to the poor weather and the impact of five interest rates rises starting to filter through to consumer spending.

Last week, John Lewis expressed concerns about the outlook ahead of Christmas, although it bucked the trend of the high street with a strong half-year performance.

Nick Bubb, an analyst at Pali International, said retailers had been hard hit by the Northern Rock crisis. Shares in the general retail sector fell by 3.6 per cent last week and are currently 17 per cent down on the year to date. This compares to a 1 per cent dip in the FTSE All-Share.

"The global credit crunch has spilled over into higher mortgage rates and tighter credit controls and the retailers have been hit hard by the dramatic Northern Rock crisis," Mr Bubb said.

Evolution yesterday downgraded its profit forecasts for Marks & Spencer, which will report half-year results in November, due to the difficult trading environment, and cut its share price target from 720p to 620p.

Freddie George at Evolution said higher mortgage cost will impact on the housing environment, food price inflation is set to increase, while the deflationary effect of sourcing from the Far East is set to unwind. "This would have a significant impact on consumer confidence," he added.