Martin Flanagan: Debenham's is leaner and meaner, but sales have to rise

But like-for-like sales virtually treading water in a high street that is likely to be squeezed by tax rises and reduced public sector spending after the May General Election took the gloss off.

Debenhams' same-floorspace sales were especially disappointing, given that the likes of Marks & Spencer and John Lewis both cheered the market with strong sales rises recently.

It said sales in stores open over a year were up just 0.3 per cent.

By contrast, gross profit margins rose 70 basis points, making it clear that management has taken a grip on costs and eschewed much of the previous price-discounting.

Debs is in an odd position. It is clearly, under chief executive Rob Templeman, doing a lot of the right things internally now, which have resulted in the better profits performance and debt coming down more than 400m to 511m.

But, even with its new focus on own-brand products apparently paying off, you can only shrink your way to improved margins and better profitability for so long.

Then it has to be a growth story to take things farther, and it is difficult to see how this lacklustre level of like-for-like sales growth at the group can be improved in a trading environment that is almost certainly going to get tougher for the consumer after the general election.

Total sales may grow if Debenhams hits the acquisition trail again after its recent purchase of Danish retailer Magasin du Nord. But that is only a one-off acquisition-fuelled growth, which will not persuade the market the company has really got the hearts of shoppers with its underlying offer.

Yesterday the shares, which re-floated on the stock market at 195p in 2006 after a debt-building period in private equity ownership, closed down nearly 3 per cent at 76.1p.

This was not pure disillusionment with the pallid sales progress, as there were the definite positives in the story, as outlined above.

Some of it will have been profit-taking as the stock had risen 15 per cent over the previous month.

But, even so, until like-for-like sales show more meaningful advances, many investors will believe the present progress is already in the share price.

For Debenhams' management the message is: quite a bit done, quite a bit still to do.

Sun rising in the east, with Europe mired in gloom

EQUITY investment is a global business and usually a zero-sum game.

Hence, it looks like the beneficiary of the stock market jitters in the UK and Europe produced by the Greek sovereign debt scare is Japan.

The latest monthly fund management survey from Bank of America Merrill Lynch shows that Japan is reaping the benefit from continuing investor concern about Greece even with the just-announced multi-billion eurozone bailout for that country.

BoA Merrill Lynch says a net 12 per cent of global asset allocators are overweight in Japanese equities – the highest level since July 2007.

In February, when concerns about Greek debt were relatively nascent and yet to trigger serious worries about sovereign debt in other parts of the eurozone such as Portugal, Ireland and Italy, asset allocators were underweight in Japan.

Merrill's April survey is interesting because until Greece came along fund managers were going overweight in Europe as a recovery play following our well-publicised banking problems.

Now Japan looks a cleaner recovery play, without the complications from the Aegean. Patrik Schowitz, European equity strategist at Merrill, says another positive factor for Japan is "people are very confident the yen will fall from here. That should help an export economy like Japan".

And Europe following its equities' false dawn among cyclical recovery-hunting asset managers? A net 18 per cent reported underweight positions in Europe in April, down only marginally from the net 21 per cent underweight in Europe in March.

It looks to be some time yet before confidence will seep back. And a hung parliament in the UK is unlikely to freshen any wind of change in investor sentiment.