Debenhams to host other retailers to lift profits

Debenhams' Michael Sharp hopes concessions held by companies such as Costa Coffee will bring customers back to its stores. Picture: Getty

Space optimisation trials have continued with a number of brands, which also include fashion business Monsoon.

Unveiling half-year results yesterday, the department store group said the initial results had been encouraging and the trials are being extended to more stores, in addition to the launch of further brands new to Debenhams – Only and Jack & Jones.

A tighter grip on promotions helped boost interim profits by 4 per cent. The retailer, which has 161 UK stores and 246 outlets worldwide, said there were 14 fewer days on promotion in the six months to 28 February as its earnings lifted by more than expected to £88.9 million.

A year earlier Debenhams was forced to issue a Christmas profits warning due to poor sales and a botched promotional strategy. The company has since overhauled its pricing and online offer and is benefiting from renting out some of its under-used space to other retailers.

Chief executive Michael Sharp said he was pleased with the company’s progress after the new promotional strategy helped deliver a strong increase in full-price sales.

“I think these set of results prove that the strategies we established over a year ago are the right thing for Debenhams,” said Sharp, adding the chain was on track to achieve full-year expectations.

Revenues in the UK grew by 1.7 per cent to £1.1 billion, helped by the better Christmas performance and the impact of bringing forward a new season promotion into the first half to coincide with pay day at the end of February.

Two new stores opened during the half, in Scunthorpe and Borehamwood, adding 69,000 square feet of trading space. Its new store pipeline stands at eight stores, with five set to open in the autumn ready for peak trading, adding 287,000 sq-ft of trading space. The remaining three are planned to open over the following three years.

Online sales increased by 12.7 per cent to £271.8m, accounting for 17 per cent of total sales in the half.

The international store estate now amounts to 85 stores, including 68 franchise outlets in 24 countries.

City reaction to the latest results was somewhat muted yesterday.

Cantor Fitzgerald retail analyst Freddie George warned: “We remain concerned that the department stores are capital intensive and need to be furbished to a higher standard to attract shoppers. We also believe there is a growing cost to the business from growing its online operations.”

Reiterating its “sell” recommendation on the shares, brokerage Investec Securities said: “While management is pleased with its progress towards its strategic priorities, we believe these results confirm our view that any gross margin benefit from lower markdowns/promotions will need to be reinvested into the offer.”

But analysts at Barclays said: “Although the beat today is relatively modest, we believe it will be enough to push shares higher given Debenhams has returned to profit growth and left the era of profit warnings behind.”