Debenhams' first-half profits were up 11%, jumping to £102.2m during the six months to the end of February. Which makes for another heart-warming tale of tills ringing on the high street. But investors won’t see any kind of payout just yet: there’s the niggling matter of a £1bn debt pile to worry about first.
Debenhams’ own brands led the charge. Sales of its 'Designers at Debenhams' range increased 11%, as people began to downgrade their wardrobes. Apparently punters are forgoing that Prada handbag for a snazzy Debenhams number instead. It's now planning five new stores during 2010, having opened four in the six months to February 28. The success of its own brands has prompted Debenhams to increase their floor space, and it could squeeze out some of its higher-end suppliers to make room. Debenhams wants own-brand products to account for over 85% of its sales in future (because the margins are better).
It seems the retailer has really got the bit between its designer teeth: it’s even eyeing the possibility of more acquisitions. Its statement refers to the potential for ‘opportunistic’ purchases, which could mean Debenhams hoovering up smaller suppliers that are struggling to cope with the recession. It’s already snapped up the Principles range, after its parent group went into administration. Now it’s on the lookout for other suppliers that might be on the ropes as the retail industry takes a beating. This is all remarkably bullish behaviour for a chain which, not so long ago, was taking a beating on the stock market after a brief - but famously profitable - period in the hands of private equity.
However, it won’t be dishing out any nice dividends for investors. As well as ploughing its profits into the store expansion, the chain has promised to work at reducing its mountain of debt. The retailer managed to cut that debt by £52m in the first half, but there’s still £927m to be paid. Debt has become its major headache during the recession, depressing its share price.
Still, the market didn’t seem too bothered by that little matter today, as early morning trading saw Debenhams’ share price surge by 21%. Its shares have now trebled in value since the start of the year: investors are flocking to one of the rare good news stories still left in retail. And picking up some recession-friendly designer shoes while they’re there, too.
In today's bulletin:
IMF adds to gloom as Darling fails to slay deficit dragon
No cigar for Grade as ITV boss moves upstairs
Revitalised Debenhams plans expansion as profits surge
Businesses cry foul as Budget comes up short
How to make your management recession-proof