Debenhams today said it was expecting annual profits to rise by around 20% after it put margins ahead of sales in a “year of change”.
The high street retailer is pencilling in underlying profits of about £150m (€180m) for the year to August 28.
It saw a recovery in like-for-like sales during the last 10 weeks of the year against weaker comparatives, but said sales remained flat overall after it moved away from concessions to focus on higher margin in-house ranges.
The group has concentrated on high-profile designer collections from the likes of Henry Holland and Ben de Lisi – a overhaul that cost it around 1.5% in same store sales.
Rob Templeman, chief executive of Debenhams, said: “We have said throughout 2010 that this would be a year of change for Debenhams and a year when the structural shift towards own bought merchandise means that we will judge our performance on profit improvement rather than sales.”
While the group is expecting further progress in the new financial year, Mr Templeman added: “We believe it is correct to remain cautious about the level of consumer confidence going forward.”
ebenhams confirmed clothing prices were rising across the industry in the face of higher cotton costs and currency exchange rates - comments that follow a similar warning from budget retailer Primark.
Industry figures suggest price tags have risen by around 4% to 4.5%, even before the impact of the Government’s VAT hike to 20% in January.
But Debenhams said it was hopeful of sheltering shoppers from much of the price inflation.
Rising cotton prices will hit retailers harder at the value end of the market, according to the group, while it has also gained some flexibility by fixing exchange rates at favourable levels.
Mr Templeman shrugged off recent concerns over its move to launch a 25% off sale at the start of the autumn/winter season.
He estimates like-for-like sales rose 2% in the final 10 weeks of the group’s financial year and said the disruption of its strategy overhaul was now behind it.
“Until we get some clarity on public sector savings, you have always got to be cautious, but while last year we were on the back foot, this year we are starting very much on the front foot,” he said.
The group converted large areas of its outlets from concessions to own-brand ranges at the end of last year and has been keeping a tight control on stock to improve margins.
It has also looked to drive online sales, with in-store kiosks introduced to help make shopping more convenient for consumers.
The firm said Debenhams Direct sales leapt 88.4% higher over the year as a result.
Debenhams has 11 stores in Ireland employing around 2,400 people.