Debenhams stock and value wiped off by profit warning

Debenhams Plc. plunged 11 percent in London on Monday to 84.55 pence after the British department store chain issued a profit warning. The fashion retailer blamed the bad weather for comparable sales from January 14 to

January 27 to have declined 10 percent.

Following other fashion retailers’ trail, Debenhams has seen its stock and ratings affected by their profit warnings. Consequently, the retailer has seen almost 175 million pounds wiped off its value.

In this case, the company said like-for-like sales dropped 10 percent between 14 and 27 January when "the UK business was severely disrupted by the snow.” In the same breath, Sharp said conditions on the high street would continue to be difficult this year. "That was a period where customers were still looking to buy bargains. When you get into February, people are starting to look for new products," Debenhams’ CEO added.

The warning left analysts and investors wondering alike, with the likes of Kate Calvert at Seymour Pierce stressing that "They are hooked on promotions. Their customers know there is no point paying full price for things."

Bethany Hocking from Investec shared her firm’s concerns with ‘City A.M.’ stating that “Management emphasise the impact of snow, but we see this as more of a gross margin and cost issue. Potential over-optimistic buying for second half concerns us and as a result our new 2013 gross margin assumption is below guidance.”

However, Sharp defended the store's strategy, arguing that "Customers like our promotions, they feel they offer genuine value for money and that is one of the reasons they shop with us."

Calvert also remains sceptical about Debenhams’ like-for-like sales estimates for the second half – the fashion chain is aiming for a 4 percent growth, saying “That seems a very aggressive trading strategy in the current climate."

But other analysts said Debenhams appeared to be among the worst hit, as it failed to recoup sales in the following weeks, reported ‘The Guardian’. Jonathan Protchard at Oriel Securities supported Debenhams’ strategy: “ While this is a disappointing result, we believe that management continues to pursue the right strategy here. Carefully targeted ranges are being appropriately priced and Debenhams continues to take market share.”

At this respect, Debenhams management is confident they could grow sales in the second half. "The disappointing factor is the impact of snow. It's quite clear what the problem was and it's now behind us."

Factoring these adverse conditions in, Debenhams now expects pre-tax profits for the first half to come in at 120 million pounds, rather than the 130 million pounds analysts had forecasted, and more than 5 percent lower than in the first half last year, published ‘The Independent’.

Like-for-like sales for the six months to 2 March rose by 3 percent, while gross margins for the first half will be around 0.2 percent below the same period a year ago and will be flat for the full year, rather than rising by 0.1 percent as previously forecast. The company will publish its first half results on 18 April.

"The reality of life is we are bumping along the bottom. We've talked in the past about customers becoming acclimatised to the new economic reality. We are not expecting any bounce-back this year," Sharp concluded.