Debenhams proves UK’s high street is not all doom and gloom

By MARTIN FLANAGAN
Published on 18/09/2012 18:38

DEBENHAMS continued to put its rivals in the shade with a further solid trading performance over the summer.

The department store group, which trades from nearly 170 locations in Britain, Denmark and Ireland, and more than 60 international franchise outlets, said it would meet City consensus expectations of about £156 million pre-tax profit in the current financial year to 1 September. This would be up from £152m last time.

Michael Sharp, group chief executive, said in the latest period the company had won market share in womenswear, and that he was encouraged by the start to the autumn/winter season. “We saw no slowdown at all in August,” Sharp said.

It follows clothing rival Next reporting last week that sales in August and early September had been disappointing, and Marks & Spencer admitting it had lost womenswear market share in its first financial trading quarter taking in much of the summer period.

Sharp said that, although the summer weather had been poor, Debenhams was more insulated than most through its wide product range, including clothing, accessories, homewares and health and beauty.

“If the sun’s shining or it’s raining we have more tunes to play across the product range than many other retailers,” he said.

Sales at stores open over a year rose 3.7 per cent in the ten weeks to 1 September, an improvement on the 3.1 per cent rise in the 16 weeks to 23 June. It took the increase for the year to 1.6 per cent, outstripping analysts’ consensus expectations of up 0.6 per cent. Debenhams’ strong performance followed on from robust recent trading from rival John Lewis in the department store sector.

Debenhams is not totally immune to the consumer downturn, however, with gross profit margins for 2011-12 set to be 30 basis points lower than for 2010-2011.

The company said this cut in margins was not due to price-cutting, but rather having a higher proportion of lower-margin health and beauty and clothing concession sales in the overall revenue mix.

Debenhams said it planned to open 14 new stores over the next five years which, with ongoing refurbishments, would add 7 per cent to trading space and increase sales by about £180m. It also said it saw scope for a further 76 UK stores.

Sharp said he saw “no clear signs yet” that there is any form of economic recovery to alleviate the consumer pressures the high street is having to deal with.

John Stevenson, retail guru at broker Peel Hunt, commented: “With the refurbishment programme, online initiatives, margin upside, new space opportunities and a good start to autumn/winter, Debenhams continues to exhibit more momentum than its competitor set.”

Shares in the group, which have shot up 77 per cent in the past 12 months, closed

unchanged at 99.45p, as some profit-taking on previous gains set in.