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Debenhams issues profit warning

Department store chain Debenhams has said that it will no longer be able to meet the pre-tax profit forecast it made two months ago.

DEPARTMENT STORES

Debenhams issues profit warning

Department store chain Debenhams has said that it will no longer be able to meet the pre-tax profit forecast it made two months ago.

In January Debenhams had reported that like-for-like sales had declined by 5.7% in the first 18 weeks of its financial year, but that pre-tax profit was on track to meet market expectations.

In a trading update issued today, the company said the subsequent eight weeks had seen the like-for-like sales decline narrow to 4.6%. This meant that in the 26 weeks to 2 March, group like-for-like sales fell by 5.3% with sales in the UK down 6% compared to a drop of 6.2% in the 18-month period.

Despite the recent improvement in trading, Debenhams said the work it is undertaking to restructure its balance sheet is likely to be disruptive to the business and would impact profit.

It added: “ Taken together with macroeconomic uncertainties and increased financing costs as a result of additional working capital needs, this means that the group's statement made on 10 January that we were "on track to deliver current year profits in line with market expectations” is no longer valid. We will provide a further update with our interim results announcement.”

Last month the company secured a £40 milllion cash injection to help the business while it looked to agree a longer term funding deal with lenders.

In today’s statement, Debenhams said it is making good progress in its discussions with lenders to address its future funding requirements, but that it still expects the process to lead to the closure of around 50 stores in the medium term.

Sergio Bucher, chief executive of Debenhams, said: "Our priority is to secure the best outcome for the business and all our stakeholders, whilst minimising the number of store closures and job losses. To do this, as we have said before, we will need the support of both landlords and local authorities to address our rents, rates and lease commitments. I would like to thank our staff - and all our stakeholders - for their continued support through this period, as we work to deliver a sustainable future for the company."

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