DEBENHAMS has extended its payment terms to suppliers to 96 days amid claims that trading conditions are “deteriorating”.

The department-store chain, which lost 18% off the value of its shares on Friday, closing at 44p, denied it was lining up an emergency rights issue.

Industry sources say that Debenhams, with £970m net debt, has seen sales slide by up to 9% against last year in recent weeks. Suppliers are bearing the brunt of the downturn in sales with payment terms greatly extended and are also being asked to give larger discounts on goods.

In a research note issued on Friday, Piper Jaffray retail analyst Mike Dennis set a 17p price target for the stock.

He wrote: “We believe Debenhams is struggling to generate cost savings of £20m and net debt reduction of £140m for next year, as department-store sales keep falling and costs are rising.

“The fact that net debt remains close to £1 billion and supplier credit at £260m-plus, on reduced cash generation, leaves few options, in our view, but to raise additional capital from investors or banks, even after a cut in the final dividend.”

Debenhams rejoined the stock market in May 2006 after two and a half years in private-equity ownership. Two of its three previous owners, CVC Capital Partners and TPG, retain a 23.7% stake in the company. Baugur, the Icelandic group, owns 13.5%.

Since returning to public ownership, Debenhams, which has 145 shops across Britain and Ireland, has issued a series of profit warnings.

In April, while reporting a 12.4% drop in underlying pretax profit for the six months to March 1, the department store warned that conditions would remain challenging as consumers cut their spending in the wake of rising living costs and falling house prices.

The department-store sector has been hard hit by the consumer downturn. Last week John Lewis said sales were down by 3% in May.

Debenhams, which last week began a 50%-off sale, is making an interim management statement on July 3.

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