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Jul 1, 2010
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Debenhams buys Faith footwear and profit margin gains offset sales fall

By
Reuters
Published
Jul 1, 2010

LONDON, July 1 (Reuters) - Debenhams (DEB.L), Britain's second-biggest department store group, said a fall in underlying quarterly sales was offset by rising profit margins as it gained share in a tough retail market.

Faith


Debenhams said on Thursday sales at stores open over a year fell 0.4 percent in the 42 weeks to June 19, as it continued to suffer from disruption caused by a switch to own-bought goods, which have higher margins than products sold via concessions.

That compared with forecasts in a range from down 5 percent to flat in a Thomson Reuters poll, and came after a rise of 0.3 percent in the 31 weeks to April 3.

"Looking forward across the balance of the year, we remain cautious about the strength of the overall retail market and the level of consumer confidence," chief executive Rob Templeman said, echoing other retailers' concerns that higher taxes and public spending cuts will hit spending.

Debenhams said it was well placed to cope, however, helped by its drive to improve profit margins, its recent purchase of Danish department store group Magasin du Nord, strong growth in online sales and its store refurbishment programme.

"A bit disappointing," said Arden Partners analyst Nick Bubb, saying the figures suggested like-for-like sales fell 2.5 percent over the last 11 weeks of the period.

"Not great, given that the clothing industry has had a pretty good time of it this season," he said, pointing to the stronger results of bigger rival John Lewis [JLP.UL]
However, Bubb said the bad news was more than factored in Debenhams shares, which have fallen 28 percent over the past three months, underperforming a 10 percent fall in the general retailers index .FTASX5370.

Debenhams, with 159 stores in Britain and Ireland and over 50 franchised outlets overseas, said gross transaction value rose 1.1 percent, excluding Magasin du Nord.
Market share gains were particularly strong in menswear and childrenswear, up 20 basis points and 40 basis points respectively, and gross profit margins for the whole financial year would be ahead of its previous guidance for a rise of 80 basis points, excluding Magasin, it said.

Debenhams said it was to buy the 115 Faith footwear concessions in its stores from Faith's administrators.

It also expected to complete a refinancing of its debt facilities in the next few weeks, which should reduce its interest costs from next financial year.

Prior to Thursday's update analysts were, on average, forecasting a year to end-August underlying pretax profit of 146.8 million pounds ($221 million), according to Thomson Reuters I/B/E/S, up from 125 million in 2008-09.

Shares in the company, which returned to the stock market at 195 pence a share in 2006 after 2-1/2 lucrative years in private equity hands, were up 0.3 percent at 53.15 pence in early trade.

(Additional reporting by Mark Potter; Editing by Dan Lalor) ($1 = 0.6645 pound)

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