Debenhams blames poor weather for profits warning

Debenhams blamed poor weather, the golden jubilee and the World Cup for a profits warning that knocked 18 per cent of the department store group's shares yesterday.

The company denied it was losing sales to the recovering Marks & Spencer though analysts said it had been forced to cut prices to avoid losing market share to its high street rival.

"They're one of the most exposed to Marks & Spencer's revival and are having to invest in heavier promotional activity to keep the top line growing," explained Katherine Wynne, retail analyst at Merrill Lynch.

Debenhams shares fell 18 per cent to 269p after the retailer said like-for-like sales in the past 20 weeks were up 6.2 per cent on the same period last year. But gross margins were down 0.6 percentage points as the group was forced to cut prices to shift unsold summer merchandise such as shorts, T-shirts and garden furniture as a result of "the prolonged unseasonal weather".

Its summer sale started on 8 July but got off to a slow start due to poor weather. When reminded that the weekend of 13 July had been dry and sunny, Matthew Roberts, the finance director, said: "Usually people don't go shopping for the first few sunny days after a poor spell of weather." Debenhams said it would cut costs to help offset the margin erosions. This will include lower staff bonuses and a cut in the number of hours worked by part-time staff.

Debenhams' share of the UK clothing and accessories market was down 0.2 percentage points in June according to Fashiontrak. M&S's share rose by 0.8 percentage points. Debenhams indicated that Next and House of Fraser had seen declines in June while Matthew McEachran at Investec Henderson Crosthwaite identified "other department stores and independent retailers" as the main losers.

"M&S are definitely back on track," Belinda Earl, Debenhams' chief executive, said. "There are some market share shifts happening but generally our overall market share is holding up and we are encouraged by that."

Mr McEachran has cut his current-year profit forecast from £159m to £154m and the forecasts from the next year from £169m to £164m.