Debenhams, Britain’s second-largest department store by sales, warned profits would fall well short of market expectations after a hoped-for surge in last minute Christmas shopping failed to materialise, sending its shares slumping.

In an unscheduled trading statement, the retailer became the first to update the market on how it had fared over the key Christmas trading period, saying demand had been so poor it would now have to cut prices even further to clear stock, wiping £140 million off its market value.

Bad weather in the run-up to Christmas and a still cautious approach by many consumers to spending has sparked fears that retailers will struggle over the end of year trading, prompting many to slash prices to try and support sales.

With a weaker online offering and two strong competitors in John Lewis and Next, Debenhams has struggled to tap into the tentative economic recovery in Britain. The firm also said it would cease its share buyback programme.

“It looks like they’ve obviously had a very challenging Christmas period,” Numis analyst Andrew Wade said. “While this is obviously a very disappointing update, we don’t necessarily expect this to be repeated across the retail space.”

Shares in Debenhams, which started the day down 27 per cent on a year ago, were down 14 per cent to 72 pence at 1102 GMT.

Debenhams said it now expects profit before tax for the first half of its fiscal year to be in the region of £85 million, down from analyst forecasts of £112 million, according to Thomson Reuters data.

In the 17 weeks to December 28, it reported like-for-like sales of 0.1 per cent growth as demand for gifts, beauty and home products just offset the weak demand for clothing. The deep discounting is likely to knock gross margin for the first half by between 80 and 100 basis points, it said.

“As has been widely commented on in the media, the market was highly promotional in the run-up to Christmas and we responded to these conditions to ensure our offer was competitive,” Debenhams chief executive Michael Sharp said.

“However, this extremely difficult environment has inevitably had an impact on both our sales and profitability. Looking forward, I expect conditions to remain highly competitive as we enter 2014.”