Debenhams: Christmas comes too late to save retailer from sales fall

LONDON, United Kingdom - Debenhams, Britain's No.2 department stores chain, posted an unexpected fall in first-quarter sales as a strong Christmas failed to undo the damage from mild autumn weather.

The firm said on Tuesday UK like-for-like sales for the 19 weeks to Jan. 10 fell 0.8 percent, below analyst expectations for a 1 percent rise, as demand for winter clothing suffered from the unseasonal weather that hurt much of the industry.

Shares in Debenhams fell as much as 8.6 percent as the firm also warned weaker clothing demand and higher sales of low-margin categories meant a full-year rise in gross margin would be at the lower end of its 0.1-0.4 percentage point forecast.

Investec analyst Kate Calvert trimmed her full-year pretax profit estimate by 1.6 million pounds to 111.7 million.

"We remain concerned that the department stores are capital intensive and need to be furbished to a higher standard to attract shoppers," said Cantor Fitzgerald analyst Freddie George, retaining his "hold" rating on Debenhams shares.

One bright spot was a strong improvement in Christmas trading, with underlying sales up 4.9 percent over the four weeks to Jan. 10.

After a dire Christmas in 2013 when it was forced to warn on profits after big discounts failed to boost sales, Debenhams moved to manage stock better, reduce promotions and improve online ordering and delivery in 2014.

The firm said it had spent 10 fewer days on promotion in its first quarter and saw full-price sales rise 12.1 percent.

Online sales grew 28.9 percent over the four weeks to Jan. 10, helped by an improved mobile site, the introduction of a next day click-and-collect offering, and a 10 p.m. cut-off for next evening delivery.

Rivals Next, John Lewis and House of Fraser have also reported healthy trading figures over the Christmas period.

Debenhams chief executive Michael Sharp said he expected the trading environment to remain competitive and was not anticipating a big change in consumer confidence in 2015.

Shares in the company were trading down 7.9 percent at 69.1 at 0910 GMT.

£1 = $1.51