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.


Merkel seeks united front with China amid Trump trade fears

Updated 22 May 2018
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Merkel seeks united front with China amid Trump trade fears

  • Merkel seeks common ground to ward off trade war
  • Plans complicated by US policy moves

Chancellor Angela Merkel visits China on Thursday, seeking to close ranks with the world’s biggest exporting nation as US President Donald Trump shakes up explosive issues from trade to Iran’s nuclear deal.

Finding a common strategy to ward off a trade war and keep markets open will be Merkel’s priority when she meets with President Xi Jinping, as Washington brandishes the threat of imposing punitive tariffs on aluminum and steel imports.

“Both countries are in agreement that open markets and rules-based world trade are necessary. That’s the main focus of this trip,” Merkel’s spokeswoman Martina Fietz said in Berlin on Friday.

But closing ranks with Beijing against Washington risks being complicated by Saturday’s deal between China and the US to hold off tit-for-tat trade measures.

China’s economic health can only benefit Germany as the Asian giant is a big buyer of Made in Germany. But a deal between the US and China effectively leaves Berlin as the main target of Trump’s campaign against foreign imports that he claims harm US national security.

The US leader had already singled Germany out for criticism, saying it had “taken advantage” of the US by spending less than Washington on NATO.

Underlining what is at stake, French Economy Minister Bruno Le Maire warned the US-China deal may come “at the expense of Europe if Europe is not capable of showing a firm hand.”

Nevertheless, Merkel can look to her carefully nurtured relationship with China over her 12 years as chancellor.

No Western leader has visited Beijing as often as Merkel, who will be undertaking her eleventh trip to the country.

In China, she is viewed not only as the main point of contact for Europe, but, crucially, also as a reliable interlocutor — an antithesis of the mercurial Trump.

Devoting her weekly podcast to her visit, Merkel stressed that Beijing and Berlin “are both committed to the rules of the WTO” (World Trade Organization) and want to “strengthen multilateralism.”

But she also underlined that she will press home Germany’s longstanding quest for reciprocity in market access as well as the respect of intellectual property.

Ahead of her visit, Beijing fired off a rare salvo of criticism.

China’s envoy to Germany, Shi Mingde, pointed to a “protectionist trend in Germany,” as he complained about toughened rules protecting German companies from foreign takeovers.

Only 0.3 percent of foreign investors in Germany stem from China while German firms have put in €80 billion in the Asian giant over the last three decades, he told Stuttgarter Nachrichten.

“Economic exchange cannot work as a one-way street,” he warned.

Meanwhile, looming over the battle on the trade front is another equally thorny issue — the historic Iran nuclear deal, which risks falling apart after Trump pulled the US out.

Tehran has demanded that Europe keeps the deal going by continuing economic cooperation, but the US has warned European firms of sanctions if they fail to pull out of Iran.

Merkel “hopes that China can help save the atomic deal that the US has unilaterally ditched,” said Die Welt daily.

“Because only the giant emerging economy can buy enough raw materials from Iran to give the Mullah regime an incentive to at least officially continue to not build a nuclear weapon.”