Debenhams today issued a first half profit warning as it blamed the snow for impacting sales. Retail Week takes a look at what the analysts say.

Debenhams has “form” when it comes to selectively blaming “snow” for poor trading (we don’t recall them being hit by the snow in early February last year), but at least it’s come out promptly after the end of the first half (to end Feb) with an overview of the full picture: sales have recovered, but gross margin has been hit and so the first half profit before tax will be below expectations at £120m, versus hopes of £128m-£130m - Nick Bubb, independent analyst

Our sense had been that weekly volatility has been a fact of life and that, with Christmas and the early part of the January sales out of the way, the sector would navigate the snow without profit warnings. 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 - Sanjay Vidyarthi, Espirito Santo


Debenhams has produced an unscheduled H1 trading update, taking full-year 2013 gross margin guidance to flat versus a +10bp guided previously. This follows disappointing margin performance over the Christmas trading period. Today’s statement also guides first half profit before tax to £120m against £128.5m last year and consensus £128-£130m. The reason given is that snow between 14-27 January caused UK like-for-likes to fall 10%, and that to recover these sales additional promotional activity was necessary during February. Consensus profit before tax is likely to come down by around 6% today: our forecast moves to £156.4m from £166.4m - Jean Roache, Panmure Gordon

This is the second downgrade on Debenhams this year, which starts to raise questions about its strategy and the sustainability of its UK profits short term. As we discussed in our note ‘Marking Time’ published in November 2012, management’s medium term targets were already assumed within our forecast and consensus and UK profitability was expected to remain under pressure. Debenhams has limited space growth over the next 18 months and the Oxford Street refurbishment costs to carry. To become more positive, we need evidence of stable UK profits as the company also reported a fall in UK EBIT year-on-year in full-year 12 - Kate Calvert, Seymour Pierce

In an attempt to compensate for the weak month, Debenhams ramped up promotions in February focused on Valentine’s Day, half-term and the month end. Although this did have some success, it came at a price, with the focus on discounting inevitably undermining margins and profits. Indeed this is a conundrum now facing many retailers. Although sales are a useful tactic to grab the attention of reluctant shoppers, the widespread use of them in recent years means consumers are quick to put their money away when things return to full price. The likes of Debenhams then have to carefully negotiate a middle ground between luring them back with more promotions and eroding profitability.  The tough environment in recent times means that it is a hard balance to get right. – Matt Piner, Conlumino

We expect consensus to move to c.£155m profit before tax for the full-year (c.10p EPS). At this initial stage we would not expect to differ materially from consensus. This implies a c.7% downgrade to our current full-year 2013 profit before tax forecast of £166m. Full year guidance on costs, capex, dividends and buybacks unchanged. The shares have been weak over the last few months due to the pension credit issue – this further piece of bad news is therefore very disappointing. We also expect management credibility to take a knock today.We expect the shares to suffer significantly today - Bethany Hocking, Investec