Autumn chill to give Debenhams a fillip

Customers stocking up on winter woolies set to bolster chain's profits
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The Independent Online

Autumnal weather will provide a boost to Debenhams' full-year results next week as shoppers hit the high street to stock up on warm coats and woolly hats ahead of the winter freeze.

Investors are hoping the figures will give some clarity on how shops are faring following conflicting news last week. The Local Data Company found that retail chains closed shops at the rate of 32 a day in July and August, while the Office for National Statistics said that retail sales across the country rose by 0.6 per cent last month.

John Stevenson, the general retail analyst at Peel Hunt, said that less volatile weather than the country experienced in the summer should have helped to boost the number of customers reaching Debenhams' tills in September, the last month of the chain's financial year.

He forecasts that this will take Debenhams pre-tax profit to £160.3m, although this is down slightly on last year. A weaker cotton price has also helped margins, while there has been a modest improvement in consumers' disposable income.

Mr Stevenson said: "Having struggled to pass input inflation on to consumers over the past 18 months, the falling cotton price and excess capacity has served to reduce gross margin pressure. Furthermore, with tight stock control and a poor autumn/winter for clothing retailers last year, we see scope for year-on-year improvement in markdown levels also."

Revenue is expected to top £2.5bn, but that figure is down from nearly £2.7bn in 2011. In a trading statement last month, Michael Sharp, chief executive, hit an upbeat tone, pointing out that like-for-like sales have been on the up all through the year, arguing that to achieve this in "extremely challenging market conditions is highly creditable".

The news will be a boon for the company's 30,000 employees, who have found themselves at one of the more resilient high-street chains in the second half of the downturn.

The reward for investors could be a marginal increase in dividend pay-out, from 3p to 3.1p a share.

Mr Stevenson added that Debenhams and the industry should have a better Christmas, the key part of the retailer's calendar, than last year.

Also reporting next week is Whitbread, whose Costa Coffee brand and shops have proved such a fast-growing hit in the UK and Asia. However, analysts at Panmure Gordon have warned that Whitbread's low-budget Premier Inn hotel chain could struggle over the next 18 months as Travelodge re-emerges as a strong competitor.

Last month Travelodge completed a company voluntary agreement, a legally binding contract with creditors that saw rent reductions at 100 of its hotels. CVAs have been popular as a method of relieving struggling companies of mountains of debt during the credit crunch, with the gym chain Fitness First going through the process in June.