Debenhams Plunges After It Scraps Forecasts

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Debenhams Plc fell as the U.K. department-store chain scrapped its profit guidance after saying talks with creditors will be more disruptive than expected.

It was the fourth profit warning since early 2018 for Debenhams, which stuck to plans to shut about 50 stores as it seeks a more comprehensive restructuring after securing a temporary lifeline. Options could include issuing new shares, a debt-for-equity swap or insolvency procedures.

Though sales stabilized slightly in recent weeks, an earlier prediction for profit in line with market expectations is no longer valid, the company said. The shares fell as much as 12 percent early Tuesday in London.

The latest warning from the middle-market department-store chain adds to the gloom on the U.K.'s shopping streets, as Britons buy more online while keeping a tighter hold on their wallets with Brexit looming. In addition to higher financing costs, Debenhams blamed “macroeconomic uncertainties.”

So far, the company has avoided the fate of rival House of Fraser, which was bought last year by billionaire Mike Ashley's Sports Direct International Plc after beginning insolvency procedures. Debenhams earlier gained time by securing 40 million pounds ($53 million) in liquidity.

Debenhams said talks on a more sweeping financial overhaul, including “options to restructure the balance sheet,” are continuing. That could include steps like a debt-for-equity swap, a shareholder rights issue or a so-called company voluntary arrangement, an insolvency procedure through which it would seek rent reductions.

“The most likely outcome, in our view, remains a CVA to shed the underperforming stores in the most efficient manner,” Citi analyst Adam Cochrane said in a note.

Debenhams is seeking support from landlords and local authorities to address rents and property taxes, Chief Executive Officer Sergio Bucher said in a statement.

Ashley, who also owns a stake in Debenhams, in January orchestrated a coup to remove Bucher and Chairman Ian Cheshire from the board, though the CEO remained in that role.

A decline in comparable gross transaction value moderated in the most recent eight weeks, falling 4.6 percent, compared with a 5.7 percent decline in the first 18 weeks of the financial year, the company said.

--With assistance from Lisa Pham.

To contact the reporters on this story: Eric Pfanner in London at epfanner1@bloomberg.net;Ellen Milligan in London at emilligan11@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John J. Edwards III

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