(Bloomberg)—Debenhams Plc’s disastrous Christmas highlighted a widening chasm in the U.K. retail sector between companies that have managed to migrate online to fend off Amazon.com Inc. and those stuck in their stores.
The shares fell the most on record when the London-based department-store chain—a fixture of the U.K.’s downtown shopping districts— said Thursday that year-end sales declined and full-year profit will be below analyst expectations.
“Clearly this is a very disappointing outcome and highlights just how tough the U.K. operating environment is,” Cantor Fitzgerald analyst Mark Photiades said by email.
The warning follows a more upbeat report from rival Next Plc, No. 15 in the Internet Retailer 2017 Europe 500, on Wednesday, showing how the U.K.’s brutally competitive retail market is weeding out store owners that have failed to build viable digital businesses. Next generates more than 40% of its revenue from e-commerce and mail orders, while just 15% of Debenhams’ sales are online.
Debenhams’ struggle with e-commerce compounds problems stemming from the Brexit-induced weakness of the pound, which has increased sourcing costs, and a shift in consumer spending away from clothing. Debenhams (No. 27), known for selling everything from toasters to cologne at mid-range prices, has been adding cafes, bars and restaurants to try to lure shoppers back in—so far with only limited success.
As the U.K. leads Europe’s adoption of online shopping, the country’s “high streets” are suffering. Stalwarts of those downtown shopping arteries like BHS and Austin Reed have gone bust while anchor Marks & Spencer Group Plc (No. 23) is retreating by closing some of its stores.
Discounters have also stepped into the gap. German low-cost grocer Aldi said Thursday that U.K. Christmas sales rose 15%. Other retailers, including Marks & Spencer and Tesco Plc (No. 5), are set to report next week, and Debenhams moved up its trading update as a result of the dismal holiday period.
In the runup to Christmas, hedge-fund manager Crispin Odey, whose Odey Asset Management has a short position in Debenhams, said it was a race between Debenhams and rival department-store chain House of Fraser (No. 69) “as to who will go down first.”
Debenhams shares fell as much as 24%, the most on an intraday basis since the company went public in 2006. Sports Direct International Plc (No. 45) founder Mike Ashley owns a 21% stake in the retailer.
Highlights of Debenhams’ trading update:
Pretax profit probably will be 55 million pounds to 65 million pounds ($74 million to $88 million) in the year ending Aug. 31 if current volatile, competitive business conditions persist Analysts expect about 82 million pounds, the average of estimates compiled by Bloomberg Comparable sales in the 17 weeks through Dec. 30 fell 1.3% Debenhams identified an additional 10 million pounds in cost savings beyond previous guidance.Favorite