Debenhams drops despite record Christmas as margins disappoint

13th Jan 2015 07:40

Despite a record Christmas, high street department store Debenhams has scaled back its forecast for margin improvement due to strong sales of lower-margin products over the festive period and a poor clothing performance.The stock dropped sharply in early trading on Monday as the retailer revealed that year-to-date like-for-like (LFL) sales had unexpectedly fallen.Debenhams said the gross margin for the year ending August 2015 will likely be "towards the lower end the guidance of +10 to +40 basis points".The change was because of a strong performance from lower-margin categories such as beauty and some concession brands, combined with a "challenging season in clothing".Nevertheless, a tight control on spending means that full-year costs will rise at the lower end of the +2-4% guidance range.Debenhams said it delivered a "strong performance" over the key Christmas trading period with like-for-like sales up 4.9% year-on-year in the four weeks to 10 January.Trading was helped by record group sales in the seven days before Christmas, as well as an impressive performance on Black Friday with sales on that week up 10.3% and online orders surging 125%.However, over the 19 weeks to 10 January (since the start of the financial year), LFL sales were down 0.8%. Analysts had expected around 1% growth over that period."I am pleased with our performance in the critical Christmas trading weeks, driven by our strength in a diverse range of product categories and a strong marketing campaign focussed on gifting," said chief executive Michael Sharp."Our performance steadily improved following the well documented challenges in the clothing market in the autumn."Looking ahead however, the group doesn't anticipate a significant change in consumer confidence and reckons that the trading environment "will remain competitive".The shares were trading down nearly 7% at 70p by 08:12.