21st Sep 11
Debenhams expects profits to be £6m ahead of forecast
by Harry Oldfield
Debenhams sales boost profits
Debenhams sales boost profits
The high street received some rare good news when Debenhams announced that profits would be better than expected as sales helped the department store pinch custom from its rivals.
Debenhams offered discounts and began its summer sales early to snatch trade from competitors including Next and John Lewis. Last week, John Lewis said that its profits had been more than halved over the first six months of 2011 with its pledge of “Never knowingly undersold” meaning it was forced to reduce prices to match competitors’ deals.
Michael Sharp, the new chief executive of Debenhams, said that shoppers were being careful with their money and promotions helped push the retailer ahead of the market. Debenhams boosted sales with customer events which cut profit margins but increased the amount of products sold. This meant that even though the company’s profit margin rate for 2011 may be lower than last year, profits for the year leading up to 3 September are now predicted to be £6m more than the £158m experts had anticipated.
The department store’s branch in Clapham Junction, London, was among the groups casualties of the riots last month, but Sharp said the unrest did not seriously damage business as it was assured for losses. He said that the Designers at Debenhams fashion brands, which includes ranges by Matthew Williamson, Julien Macdonald and Betty Jackson, were also attracting shoppers, helping its market share to improve in key areas including children’s and women’s wear.
He said that Debenhams had outperformed a difficult clothing market: there was a 1.5 per cent increase in sales by value over the 24 weeks to 7 August, although that reflected an increase of almost six per cent in average selling prices, indicating that retailers’ sales volumes fell four per cent. There have been many tales of extremely tough trading conditions in July and August, but trading for Debenhams in these months has been strong, said Sharp. There was a 0.4 per cent rise in like-for-like sales in the nine weeks leading up to 27 August.
With consumers’ spending power reduced by higher prices and a lack of credit, shopping habits are altering; people are visiting more shops and seeking out discounted goods. Andrew Wade, an analyst at Numis, said that Debenhams benefited from consumers who are increasingly reliant on promotions.
Debenhams also said that it was making inroads into reducing the £1bn debt which it has been landed with since its private equity owners returned it to the stock market in 2006. The retailer, which debuted at 195p, revealed that it paid back £130m over the year and that the figure was now at £385m. Shares in the company closed at 58.5p on Tuesday, down 0.8p.
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