Summer sun shines on trade at Debenhams

WARM summer weather and stellar online sales have boosted trading at Debenhams, Britain’s second biggest department store group.
Warm weather boosted DebenhamsWarm weather boosted Debenhams
Warm weather boosted Debenhams

Debenhams issued a profits warning in March due to the impact of January’s snowstorms, but said yesterday it is on track to meet City forecasts.

Like-for-like sales rose 1.9 per cent in its final quarter to August 31 in a marked recovery after flat sales between March to June when the inclement weather hit trading.

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The fourth quarter turnaround helped like-for-like sales to rise two per cent overall in the year to August 31.

The 200-year-old firm, which has stores in Harrogate, Leeds, Wakefield, Scarborough, York, Doncaster, Hull and Sheffield, said it has won market share in womenswear and beauty.

Debenhams, which is second after John Lewis by annual sales, said online sales rose 46.2 per cent year-on-year, outperforming the market average of 14 per cent growth.

Analysts said the online growth partly reflects a catch-up with rivals that moved online much earlier, such as Next.

Revenue through mobile phones soared 128 per cent.

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The group said it is winning market share and it will meet profit forecasts for its 2012-13 financial year.

Chief executive Michael Sharp said: “The summer weather was undoubtedly helpful, but we’ve grown market share which demonstrates that in a competitive market place the strategy is delivering.”

He pointed to data from Kantar Worldpanel which showed Debenhams’ share in clothing, footwear and accessories rose by 30 basis points in the 12 weeks to August 4.

Analysts at Oriel Securities said: “Robust trading over the last quarter should go some way to reassuring investors that the Debenhams proposition continues to appeal to customers.”

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Despite the good summer trading, Debenhams said the fledgling economic recovery is likely to take time to feed into stronger consumer spending.

“Looking forward we are confident in our strategy, but are not expecting any rapid recovery in consumer sentiment and the marketplace remains highly competitive,” said Mr Sharp.

“We’ve all seen the positive indicators and that’s maybe good for the future, but the reality is it doesn’t feel like things are getting better at the moment if you are a consumer.”

Debenhams forecast a flat gross profit margin for the full year, in line with guidance.

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Prior to the update, analysts were on average forecasting a full-year pre-tax profit of about £153m, down from £158m in the 2011-12 year.

Forecasts were cut after the profits warning in March.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said: “The update is broadly reassuring. The gross profit margin, as predicted by management, has recovered in the second half, with full-year pre-tax profit expected to materialise in line with current analyst expectations.”

Debenhams is modernising stores, including a £25m refurbishment of its flagship on London’s Oxford Street, investing in new product and online, and expanding its brand internationally.

The group said its new store in Chesterfield, which is south of Sheffield, performed ahead of expectations.

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It also plans to open a new store at the forthcoming Broadway shopping centre in Bradford.

Debenhams attributed the increase in market share in fashion and online to store revamps and the addition of a number of new designers, including Hammond & Co by Patrick Grant – its first new designer menswear brand for 10 years.

Other new designers include Todd Lynn who has joined Edition in womenswear, Top Hat by Stephen Jones in women’s accessories and Donna & Markus by designer Markus Lupfer in childrenswear. The group revamped another 12 stores across its 236-strong chain over the year.

Buoyant trade in the international business has added to the improved performance. Its Magasin du Nord chain reported a six per cent rise in full-year like-for-like sales.

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Analysts cautioned that Debenhams will have to keep on top of its game as rival Marks & Spencer stages a fightback, having recently launched a star-studded autumn/winter clothing launch aimed at turning around its womenswear sales.

Retail experts at N+1 Singer said the new ranges at M&S pose a “potential risk” to Debenhams.

Mr Bowman said: “On the downside, major rival Marks & Spencer continues to threaten a return to growth, the perception of John Lewis as the nation’s premium department store operator remains unchallenged, whilst accompanying management outlook comments have again injected some caution.

“For now, and following an impressive recovery from its debt-laden private equity past, Debenhams is now back amongst the pack.”