SHARES in Debenhams tumbled yesterday after the department store chain showed how margins were suffering from tough trading conditions.

Like-for-like sales across the group in the 20 weeks to July 20 came in above most analyst forecasts at 6.2 per cent.

But the gross margin was down 0.6 per cent because of additional promotional activity on summer merchandise as the retailer struggled with the unseasonal weather.

In addition, the summer sale got off to a slow start from July 8, hitting one of Debenhams' key trading periods.

The chain has several branches in the North-East, including Middlesbrough, Sunderland and Newcastle.

Chief executive Belinda Earl said it aimed to support sales while controlling costs and stock levels. Expectations for the second half of the financial year would reflect the reduced gross margin being achieved.

The warning prompted a cut in forecasts - Seymour Pierce is now predicting final pre-tax profits of £154.5m instead of £160m - and the shares tumbled.

As trading got under way Debenhams stock slid 41p to 288p, a 12 per cent drop in an otherwise solid start on the wider market.

But despite the disappointing trading update, Ms Earl was upbeat about the group's long-term future.

She said: "Despite the prevailing market conditions, we remain confident in our strategy and are continuing to see strong returns from our investments. We have a number of significant developments planned for the next financial year, including five new stores opening and participation in a major new loyalty scheme."