Retailer Debenhams (DEB) shed the best part of 10% today, giving up 9.3p to 85.3p after the department store operator warned first-half profits would fall short of forecasts in the wake of January's heavy snowfall.


In an unscheduled trading update, the £1.2 billion cap warned profit before tax for the half to 2 March 'will be around £120 million', down from last year's £127 million haul and consensus expectations of between £128 million and £130 million.


Debenhams, which makes roughly 80% of its profits in the first half, said the strong sales momentum reported in its Christmas update (8 Jan) had initially continued at a similar level. Renowned for its healthy market positions in both menswear and womenswear, as well as premium health and beauty products, Debenhams snared further market share in key categories and overall first half like-for-like sales were 3% ahead.


However, heavy snowfall in the latter part of January severely disrupted the UK business, sending like-for-like sales sharply into negative territory between 14 and 27 January. Heavy promotions were necessary during February to try and recover these lost sales with the result that first-half gross margins will be around 20 basis points lower than last year. Confirmation comes with next month's (18 Apr) interim results.


'Whilst the impact of the snow on the outcome for the first half is disappointing, it is now behind us and sales volumes have recovered,' said chief executive officer (CEO) Michael Sharp in his accompanying statement. 'We are confident in our spring/summer ranges and that we can grow sales in the second half.'


Today's earnings alert is a setback for the multi-channel brand with strong British heritage which trades from 245 stores in 29 countries. Under the leadership of seasoned retailer Sharp, appointed as CEO in September 2011, the London-headquartered retailer has invested successfully behind long-term multi-channel initiatives and is now the UK's eleventh largest online retailer by traffic volume.


Following the update, stockbroker Panmure Gordon has downgraded its full-year pre-tax profit forecast from £166.4 million to £156.4 million and share price target from 112p to 104p, although the broker maintains a 'hold' rating. Investment bank Espirito Santo has put its forecasts and 125p 'fair value' estimate under review and warns 'there will clearly be read-across to others today, Marks & Spencer in particular. We sense that M&S will have continued to have lost market share but possibly held margins.'

Issue Date: 04 Mar 2013