Debenhams adds to UK retail gloom with new profit warning

A shopper walks past a Debenham's store in central London. The retailer has added to the gloom in the retail sector with a profits warning.
Updated 19 April 2018
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Debenhams adds to UK retail gloom with new profit warning

  • First half underlying pretax profit down 52 percent
  • Finance chief quits for job at Selfridges

Department store group Debenhams added to the grim start to 2018 for Britain’s retail sector, lowering its full-year outlook for the second time in four months and cutting its dividend after a 52 percent slump in first half profit.
Shares in Debenhams fell as much as 13 percent on Thursday, taking its year-on-year plunge to 61 percent.
The 240-year old Debenhams, which delivered the sector’s first profit warning of the year in January, also said Matt Smith, its chief financial officer, was quitting to take up the same role at rival Selfridges.
Debenhams is not alone in finding the going tough. Official UK data showed the biggest quarterly fall in retail sales in a year.
Debenhams’ problems have, however, also been self-inflicted.
“We didn’t help ourselves at Christmas because our approach wasn’t good enough,” CEO Sergio Bucher told reporters. Debenhams said in January it had been forced to cut prices to drive sales of Christmas gifts.
Already this year Toys R Us UK, electricals group Maplin and drinks wholesaler Conviviality have plunged into administration, while fashion retailer New Look and floor coverings firm Carpetright are closing stores.
Rival department store group House of Fraser is seeking rent reductions while market leader John Lewis has cautioned on the outlook.
Bucher, a former Amazon and Inditex executive who joined Debenhams in 2016, is one year into a turnaround plan focused on closing some stores, downsizing or revamping others, cutting promotions and improving online service, while seeking cost savings.
Progress has been hampered by changing shopping habits, a squeeze on UK consumers’ budgets, a shift in spending away from fashion toward holidays and entertainment, as well as intense online competition and bad weather, including snow in March that temporarily shut almost 100 stores.
“The market has remained very volatile and competitive with consumer confidence and the clothing market continuing to fall,” said Bucher.
“The retail market is changing but this is happening faster than we or anybody expected and therefore we need to accelerate our pace of change,” he said.
Outgoing CFO Smith denied his exit showed a lack of confidence in Bucher’s plan. “I was part of developing the plan, it’s a good plan,” he said.
Bucher said progress had been made, pointing to strengthened management, sales growth from digital channels ahead of the market, encouraging returns from new store formats, and partnerships with other retailers.
“It’s not easy from the outside to appreciate the amount and magnitude of change that is happening inside Debenhams,” he said.
Debenhams made an underlying pretax profit of £42.2 million ($59.9 million) in the 26 weeks to March 3, below analysts’ average forecast of £44 million, on revenue down 1.6 percent to £1.65 billion. The interim dividend was cut by 51 percent to 0.5 pence to fund the recovery strategy.
The group is now forecasting a 2017-18 pretax profit at the lower end of analysts’ forecast range of £50-£61 million versus previous guidance of £55-£65 million. It made £95.2 million in 2016-17.
“Our biggest concern remains relevance, Debenhams has lost the customer as the product offer has become tired,” said analysts at Peel Hunt, reiterating their “sell” recommendation.
“The CFO is leaving for Selfridges, investors should follow,” they said.


As worries about populism in Europe rise, investors bet on stock market volatility

Updated 2 min 48 sec ago
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As worries about populism in Europe rise, investors bet on stock market volatility

  • More than 350 million EU citizens will head to the polls between May 23 and 26 to elect a new Parliament
  • The vote will shape the future of the bloc amid a backlash against immigration and years of austerity

LONDON: Investors are betting on heightened political uncertainty and greater volatility in European stock markets ahead of European Parliament elections in May amid growing concerns about rising populism.
In one of the first concrete signs in financial markets that investors are bracing for political instability, VSTOXX futures , which reflect investor sentiment and economic uncertainty, have jumped in recent weeks.
While the classic gauge of fear — known as implied volatility, which tracks demand for options in European stocks — is currently at 15.68, futures that bet on the same thing over the coming months show a pronounced jump.
That’s because investors have piled on trades that bet on big swings in stocks as election day nears.
Implied volatility for futures contracts expiring in May show a pronounced jump to 16.8, compared with 15.35 in April. The contracts measure the 30-day implied volatility of the euro zone STOXX 50 index.
“We are seeing a bit of a kink around May when we have European elections and we have this wave of populism,” said Edmund Shing, head of equities and derivatives strategy at BNP Paribas.

Looming elections
More than 350 million EU citizens will head to the polls between May 23 and 26 to elect a new Parliament, a vote that will shape the future of the bloc amid a backlash against immigration and years of austerity.
Mainstream center-left and center-right lawmakers may lose control of the legislature for the first time, as euroskeptic and far-right candidates build support.
Herve Guyon, Societe Generale’s head of European equity derivatives flow strategy and solutions, said the rise of populism had triggered a recent flurry of speculative trades.
“Political uncertainty might be coming from the EU rather than the United States. We’ve seen investors doing very large trades to benefit from an increase in volatility around these events,” he said.
“We as a bank don’t expect the elections to be a massive game-changer. The populists won’t get enough to disrupt the political system, but we do note some investors did take some positions on this event.”
The implied volatility is still well below levels seen in late 2018 when global stock markets were routed amid worries about rising interest rates, slowing economic growth and the trade war between Beijing and Washington.
In late December, it shot to above 26, its highest since February.
But the flurry of activity suggests investors are seeking out new opportunities after a slide in implied volatility across major asset classes.
Edward Park, deputy chief investment officer at asset manager Brooks MacDonald, said some of the activity may also be due to persistent uncertainty about Britain’s exit from the European Union as the Brexit date of March 29 nears.
This year, volatility across currency, fixed income and stocks markets has plunged as the US Federal Reserve and European Central Bank have taken dovish policy stances.
The Deutsche Bank currency volatility indicator hit multi-year lows this week, while the proxy for fixed income volatility is languishing at all-time lows.
In stocks, the Cboe volatility index, Wall Street’s so-called “fear gauge,” fell to its weakest in six months this week.
“There’s been a cross-asset volatility crash — in euro-dollar, US rates and equities — in the aftermath of (ECB President Mario) Draghi’s and (Fed Chairman Jerome) Powell’s comments and the expectation of lower rates for longer,” said Guyon.