Debenhams posts forecast-beating 4% rise in first half profits

The Debenhams store in Ipswich.

The Debenhams store in Ipswich.

Department stores chain Debenhams today reported a 4% rise in half-year profits, helped by a tighter grip on promotions.

The retailer, which has 161 UK stores and 246 outlets worldwide, said there were 14 fewer days on promotion in the six months to February 28 as its profits grew by more than expected to £88.9million.

A year earlier Debenhams was forced to issue a Christmas profits warning due to poor sales and a botched promotional strategy. The company has since overhauled its pricing and online offer and is also renting out some of its under-used space to other retailers.

Chief executive Michael Sharp said he was pleased with the company’s progress after the new promotional strategy helped deliver a strong increase in full price sales.

He added: “Looking forward, our customers tell us they are feeling a little more optimistic about the economic outlook, but they remain cautious.

“Accordingly we are continuing to plan prudently in the near term, while remaining focused on our strategic priorities.”

Revenues in the UK grew by 1.7% to £1.1billion, helped by the better Christmas performance and the impact of bringing forward a new season promotion into the first half to coincide with pay day at the end of February.

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Two new stores opened during the half in Scunthorpe and Borehamwood, adding 69,000 sq ft of trading space. Its new store pipeline stands at eight stores, with five set to open in the autumn ready for peak trading, adding 287,000 sq ft of new trading space. The remaining three are planned to open over the following three years.

Space optimisation trials have continued with a number of brands including Sports Direct, Costa, Monsoon and Mothercare.

Debenhams said the initial results have been encouraging and the trials are being extended to further stores, in addition to the launch of further brands new to Debenhams, Only and Jack & Jones.

Online sales increased by 12.7% to £271.8m, accounting for 17% of total sales in the half. The international store estate now amounts to 85 stores, including 68 franchise outlets in 24 countries.

Shares opened 2% higher today after the better than expected profits performance. However, Cantor Fitzgerald retail analyst Freddie George warned: “We remain concerned that the department stores are capital intensive and need to be furbished to a higher standard to attract shoppers. We also believe there is a growing cost to the business from growing its online operations.”