Debenhams posts acceleration in sales growth

Debenhams, the department store group with 167 stores across Britain and Ireland, showed its resilience to weak market conditions, posting an acceleration in underlying sales growth this summer when rivals, including Next, saw a drop-off in trade.

Debenhams has bucked the gloomy trend, helped by its breadth of products, broad range of customers, and increased marketing spend.

The group, which trades from stores in Britain, Ireland, and Denmark, and more than 60 international franchise stores, said yesterday it would meet analysts’ consensus expectations of about €194.5m for the year to Sep 1 pre-tax profit, up from €189m in 2010-11.

It said sales at stores open over a year rose 3.7%, excluding Vat, in the 10 weeks to Sep 1.

That compared with a rise of 3.1% in the 16 weeks to Jun 23 and took the increase for the year to 1.6% — ahead of analysts’ consensus expectations of up 0.6%.

Chief executive Michael Sharp said he expected Debenhams to continue to deliver like-for-like sales growth in its new financial year and said he was encouraged by the start to the autumn/winter season.

Debenhams’ performance contrasted with Next, which said last week sales in August and early September had been “disappointing”, and clothing market leader Marks & Spencer, which lost womenswear market share in its first quarter.

“We saw no slowdown at all in August,” said Sharp.

He said Debenhams’ variety of product categories, a core clothing offer supplemented by accessories, homewares, and health and beauty, meant it was less exposed than other retailers to the vagaries of Britain’s weather.

“If the sun’s shining or it’s raining, we have more tunes to play across the product range than many other retailers,” said Sharp.

Debenhams said its 2011-12 gross margin would be in line with guidance of 30 basis points lower than 2010-11.

That reflected a higher proportion of lower margin health and beauty and clothing concession sales in the overall sales mix rather than any increase in promotional activity.

Shares in Debenhams, up 77% over the last year, were up 0.1% at in early trading.

“With the refurbishment programme, online initiatives, margin upside, new space opportunities and a good start to autumn/winter, Debenhams continues to exhibit more momentum than its competitor set,” said Peel Hunt analyst John Stevenson.

He does not envisage a change in the economic outlook for British consumers any time soon. “The new financial year is all about what we do to make a difference... We can’t rely upon any benefit coming from the economy because there’s no clear signs yet of any form of improvement.”

Reuters