Debenhams Issues Third Profit Warning This Year

LONDON, United Kingdom — Debenhams Plc plunged as much as 20 percent after the British department-store owner, struggling to compete with online rivals, cut its full-year profit forecast and moved to reduce spending on its turnaround efforts.

The company now expects pretax profit of 35 million pounds ($46.4 million) to 40 million pounds, compared with a current market consensus of 50.3 million pounds. The move follows a series of U.K. retail failures as bricks-and-mortar merchants contend with the threat of Amazon.com Inc.

“We have seen that the situation in the U.K. has really weakened,” Chief Executive Officer Sergio Bucher said on a call with reporters. “When you look at key components of our business, clothing has been losing and footwear has been shrinking,” while the beauty business has seen a slowdown in its makeup arm despite an improvement in skincare.

To strengthen its balance sheet, the company said it plans to cut capital spending to a range of 75 million pounds to 90 million pounds, from about 140 million pounds in the current year, Chief Financial Officer Matt Smith said. That means the company, which was slow to invest in online shopping, will have fewer resources to invest in new initiatives to offset the decline of its bricks-and-mortar stores.

“Whilst this seems very sensible to us, being so capital constrained clearly makes it much more difficult for management to deliver on its transformation plans,” Morgan Stanley analysts Geoff Ruddell and Amy Curry said in a note.

Debenhams’ warning is the latest indication of the depths of the U.K.’s retail crisis, after rival House of Fraser said it plans to shut more than half of its stores and Marks & Spencer Group Plc moved to close about one-third of its large U.K. outlets. Debenhams shares traded 11 percent lower to 17.49 pence at 8:40 a.m. in London.

With Debenhams’ profits stuck in a long-term decline, its shares closed at a nine-year low this month. Mike Ashley, CEO of Sports Direct International Plc, has increased his holding in the company, spurring speculation he may try to buy it outright.

Debenhams said it’s reviewing noncore assets, including its Magasin stores in Denmark. It’s also in talks to rent out excess space in its flagship London department store to flexible-office provider WeWork Cos. as the U.K.’s retail crisis deepens, people with knowledge of the matter said earlier this year.

By Thomas Buckley, with assistance from Lisa Pham; editors: Eric Pfanner and John Lauerman.