Debenhams reports profits rise

Debenhams defies gloom on the high street with £166m pre-tax profits.

by Rebecca Burn-Callander
Last Updated: 06 Nov 2012

If ever there was proof that Brits are spurning flighty fashion and entering austerity mode, its today’s news that Debenhams’ profits and sales are up nearly 10% on last year.

The department store has been the staple source of quality, affordable fashion since the 18th century (over 100 years before Michael Marks and Thomas Spencer launched their illustrious joint venture). With its Blue Cross Sales and ‘Rocha John Rocha’, Debenhams is ever the place to go for a sturdy pair of bargain bloomers and a saucy satin evening dress for under £100.

Latest figures show that pre-tax profits at the department chain have hit £166.1m over the 53 weeks ending September 3. Like-for-like sales have also seen a slight boost, up one percentage point on 2010 (after VAT, however, the figure is back in the red at -0.3%). Not bad going in an industry plagued by rising commodity prices (the cost of cotton hit a 150-year high in February this year) and depressed consumer spending.

Debenhams chief executive Michael Sharp was jubilant: ‘We have demonstrated the resilience of the department store model by trading well in a challenging market,’ he said. However, knowing how the fates of high street retailers can turn on a sixpence, he added that he intends to ‘remain cautious about the strength of consumer confidence over the next 12 months.’ Very wise, sir.

The announcement comes just as the Office of National Statistics (ONS) reveals that retail sales are on the (slight) up. Retail volumes in September grew 0.6% month-on-month. Department stores in general saw an uplift (although John Lewis’ ‘never knowingly undersold’ pledge cost the firm £9m), with growth at 1.4% in the sector. This growth has mostly been driven by back-to-school and university purchases, but also by strong music and video game sales (thank you, Tinie Tempah and Rage).

Despite the current financial uncertainty, Debenhams’ expansion plans are bullish. It currently boasts a portfolio of 169 stores across the UK and the Irish Republic. It also has a foothold in Denmark, where the brand trades as Magasin du Nord, the name of the Danish retailer it acquired in 2009. The chain now intends to open at least nine new stores, creating 4,500 new jobs in the process, and will also revamp all its dog-eared outlets over the next few years. The first of these shiny new department stores will open in Chesterfield by 2013. In the latter noughteenies, 30 more openings are mooted.

Alongside its proprietary stores, Debenhams also has a 64-store strong franchise arm, which operates in 25 territories. Over the next five years, these franchises will almost double to 130 stores. With a tidy profit on the balance sheet, further acquisitions are also on the cards.

However, looking deeper into the firm’s financials, it’s not all moonlight and roses. Liabilities at the chain currently total £383.7m net. But Debenhams is slowly saving itself out of debt: this figure is down £133.1m from the start of its financial year. If Debenhams continues to cut borrowings, it should be out of the red by 2015 - and Sharp intends to do just that: ‘We will continue to run the business with tight management of costs and stocks.’

If only the chancellor could follow suit with the UK deficit.

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