Shoppers will shrug off any tax increases – Debenhams

DEBENHAMS has shrugged off fears about post-election tax rises, including a possible hike in VAT, hitting consumer sentiment.

Chief executive Rob Templeman was in a positive mood as he revealed the company had outstripped City expectations for first-half profit.

He said Britain's second-largest department store group expected a "broadly neutral" trading environment in 2010.

Although he was sure tax rises would come after the 6 May election, he was confident shoppers would continue to spend, citing historically low interest rates and a higher savings ratio.

"The consumer still has more money in their pocket than they had two years ago," Templeman said.

"We have got some headwinds coming, there's no doubt about that, but we've also got a lot of self-help levers that we can play upon within Debenhams."

He pointed to the company's plans to increase space, refit stores, add more own-bought ranges and grow its recent Danish acquisition Magasin du Nord.

Templeman said he backed the Tories' proposal to scrap part of a planned increase in National Insurance that has caused a row between the Labour government and scores of business leaders.

On the prospect of a new government after 13 years of Labour rule, he said: "A change is never a bad thing."

Debenhams, with nearly 160 stores in Britain and Ireland, including 14 in Scotland, and more than 50 franchised outlets overseas, posted an underlying pre-tax profit of 123.6 million for the 26 weeks to 27 February.

That compared with a City consensus forecast of 116m, and 104.2m at the half-time stage last year.

The group's revenues rose 8.4 per cent to 1.42 billion, as its strategy of increasing the proportion of own-brand products rather than concessions paid off.

Sales at stores open over a year were 0.3 per cent higher and were up by the same figure for the 31 weeks to 3 April.

Nick Bubb, a retail analyst at broker Arden Partners, said: "The disappointment is that current trading is still little more than flat like-for-like over the last five weeks, despite the earlier Easter boost and the buoyant double-digit like-for-like sales growth noises coming out of John Lewis and M&S clothing in March."

Debenhams' first-half gross profit margin – before expenses – rose 70 basis points, reflecting better sourcing and less price-cutting. The company also had better news on debt, ending the period with net debt of 511.5m, down 415.7m from a year ago following a stock market rights issue last summer.