Debenhams fears tax rises but confident shoppers will still spend

DEBENHAMS is warning of higher taxes following the May 6 General Election, although historically low interest rates should encourage shoppers to continue spending.

Chief executive Rob Templeman said that although he is sure tax rises will come after the election, other factors such as low interest rates and higher savings should boost consumer spending.

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

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The department store chain reported an 18.6 per cent rise in half-year profits yesterday and predicted stable trading ahead.

The retailer, which has sites in Leeds, York, Sheffield, Harrogate, Doncaster, Scarborough and Hull, said pre-tax profits beat market expectations, jumping to 123.6m in the six months to February 27, compared with 104.2m in the same period last year.

Debenhams, which has proved robust during the recession, said the second half trading environment would be "broadly neutral" for the firm.

The group, which is the UK's second-biggest department store group after John Lewis, is hoping to beat any cutback in consumer spending with plans to increase space, refit stores and introduce more own-bought ranges.

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It is focusing on its exclusive ranges such as its Designers at Debenhams lines, which include clothing from John Rocha, Jasper Conran, Betty Jackson and FrostFrench.

The move away from concessions has temporarily dented sales growth, but has boosted profit margins and the group is giving its own-bought products more prominence.

Like-for-like sales have remained positive, with growth of 0.3 per cent continuing throughout the half-year and up to April 3, while gross transactional values were up 8.6 per cent in the period.

Sales for the first six months rose 11.6 per cent to 1.19bn.

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Debenhams said new ranges during the first half included Principles by Ben de Lisi.

Principles, which traded through 94 stores as well as Debenhams concessions, fell victim to the recession last year, but Debenhams bought stock from administrators to keep the brand in stores until the relaunch.

Debenhams said customers had responded "extremely favourably" to the new collection, which was launched in 125 stores in February and the brand will be expanded to all outlets later this year.

The retailer said another own-bought favourite was childrenswear brand Bluezoo, which it said had "undoubtedly contributed" to its market share growth.

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Debenhams said that, according to recent industry figures, its slice of the total market for clothing, footwear and accessories remained stable.

Strong market share growth was seen in menswear and childrenswear, but womenswear suffered in the move to own-bought ranges and under performance at some remaining concessions.

The retailer has 151 full department stores and 13 smaller format Desire by Debenhams outlets in the UK, Republic of Ireland and Denmark.

It opened four new stores during the first half – a flagship branch in Newcastle, and Desire outlets in Monks Cross in York, Kidderminster and Oxfordshire.

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Mr Templeman said he backed the Conservative Party's call to scrap a planned increase in National Insurance. Asked how he saw the prospect of a new Government after 13 years of the ruling Labour Party, he said: "A change is never a bad thing."

Mr Templeman said he is "conscious shareholders like dividends" but would not commit to a resumption in payments this year.

He dismissed media speculation of a possible bid for Finnish retailer Stockmann, insisting no talks had been held with the firm. The group said debt levels had been slashed by 415.7m over a year and stood at 511.5m on February 27.

What the analysts say...

Analysts had mixed reactions to Debenhams' half year results yesterday.

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Nick Bubb, analyst at 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."

But Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said the firm "continues to do all the right things".

"A favourable combination of sales growth, expanding profit margins and gains in market share are being achieved; all whilst the group's private equity debt laden past is being slowly consigned to the history books," he said.

But he added: "On the downside, like rivals, management outlook

comments provide a degree of caution, whilst a return to paying a dividend has yet to be achieved."