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Debenhams shares plunge after KPMG drafted in for emergency plans

Debenhams last month said it would swing the axe on up to 90 staff at its fashion and home departments Photo: PA Wire/PA Images

Debenhams shares plunged 17% after KPMG was called in to help draft emergency plans to save the troubled retailer.

The department store is said to be considering a list of options including a company voluntary agreement (CVA), a controversial insolvency procedure used by struggling firms to shut under-performing shops.

The company has brought in KPMG to help draw up the turnaround plans, according to The Sunday Telegraph which first reported the news.

If Debenhams charges ahead with a CVA, it would join a raft of retailers including New Look, Carpetright and Mothercare, who have opted for the restructuring tool despite anger from landlords who have argued it leaves them out of pocket.

The news sent shares down more than 17% in morning trading.

Debenhams later issued a trading update in reaction to media reports, saying it expects full-year pre-tax profits of around £33 million before exceptional items, which is within the current market range of £31 million to £36.5 million.

Underlying earnings are forecast to come in at £157 million, with net debt of approximately £320 million.

Debenhams assured that it has continued to strengthen its financial position to ensure flexibility amid “volatile market trading conditions”.

Rival retailers such as House of Fraser have been struggling in recent years Credit: PA

Chief executive Sergio Bucher said: “The market environment remains challenging and underlying trends deteriorated through the summer months.

“Nevertheless the product and format improvements we have tested are gaining traction and we are ready to scale up some of our strategic activity ahead of peak.

“Having put in place a leaner operational structure and strong leadership team, and taken action to strengthen our financial position, we are well equipped to navigate these market conditions and take advantage of any trading opportunities that emerge.”

Chairman Ian Cheshire reiterated that the board is continuing to work with its advisers “on longer term options, which include strengthening our balance sheet and reviewing non-core assets.

“This activity is in order to maximise value for shareholders and protect other stakeholders, including our employees.”

Debenhams last month said it would swing the axe on up to 90 staff at its fashion and home departments as part of a major cost-cutting drive.

In January it announced plans to ramp up efficiency savings, with another £10 million earmarked for this financial year and £20 million extra annually.

Chief executive Sergio Bucher, who is leading the shake-up, then went on to slash 320 store management roles in February.

In June, Debenhams issued its third profit warning this year as trading came in “below plan”.

To compound matters, Debenhams is also the subject of takeover talk, with speculation building that Mike Ashley is set to merge it with his newly acquired House of Fraser.

Mr Ashley owns just under 30% of Debenhams, close to the threshold at which he must launch an official takeover bid.