Debenhams meets targets despite retail gloom

Debenhams is on track to meet profit expectations despite suffering a 1.5% drop in group sales for the six months to 26th February.

Higher margins and the benefits of a lower interest charge helped offset a decline in sales during December when the weather was bad, leaving the company feeling confident that pre-tax profits will be ahead of last year.

Rob Templeman, chief executive of Debenhams, said the company’s first-half performance was “pleasing” given the difficult trading environment.

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“Our strategy of increasing own-bought sales, as well as focusing on profit and cash generation, has again delivered margin gains despite the significant headwinds being experienced in the clothing sector supply chain,” he said.

Debenhams make the bulk of its revenues from clothing and fashion accessories, but it also generates a large chunk of sales from giftware, homeware and tableware.

The department store retailer said stock density remained under control, with terminal stocks at the end of the half expected to be at an all-time low.As a result, gross margin increased during the first half over the prior year in line with management expectations.

With disposable income under pressure, Templeman admitted Debenhams is bracing itself for a “difficult” second half but he said the company was in control of its own destiny.

“We will continue to pursue the self-help measures we have been working on over the past two years — driving market share and cash margin through own bought product ranges, increasing multi-channel access points, improving the in-store environment through refits — which will be beneficial to the business whatever the trading environment.”

A new department store in Wakefield and a new Desire store in Fareham will open during the second half, while the company confirmed it is in “advanced discussions” on a number of additional store openings. Construction of its new distribution centre is also expected to be fully operational by the end of the year.

Debenhams said its strategy to create a truly integrated multi-channel business continues to move forward. Sales from Debenhams Direct increased by 82% during the first half of the year.

Work in the first half focused on improving multi-channel access points with the launch of the iPhone app and Debenhams TV, as well as the roll-out of self-service order kiosks to more stores and a launch of local currency online shopping in Ireland.

It also revealed that net debt at the end of the first half is expected to be in the region of £350m — a reduction of £160m against both the same point last year and the start of the current financial year.

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