Bhs profits flat but Sir Philip claims to have turned the corner

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Bhs yesterday claimed to be seeing early signs that its store revamp plan is paying off but Sir Philip Green, the department store chain's billionaire owner, stopped short of calling the recent sales growth a recovery.

Sir Philip said he was encouraged by a 3 per cent rise in like-for-like sales over the past six weeks but said the retailer needs more time to evaluate its prospects. "It's too early to say. Last year we had an Indian summer as it didn't get cold until October. We really need another month to get a feel for the market."

Echoing comments from Tesco earlier this week, Bhs said it had yet to feel the impact of lower consumer confidence on the back of the recent credit crisis and stock market volatility. The recent sales pick-up may improve confidence that consumer spending is still resilient after the coldest summer on record although Sir Philip said there had also been "pent-up demand from when people weren't buying over the summer".

Bhs recorded a decline of nearly 2 per cent in like-for-like sales in the year to the end of March while operating profit increased 3 per cent to £50m. The results represented a substantial improvement on the year before when profits collapsed 54 per cent and like-for-like sales slipped by more than 7 per cent due to problems with its womenswear product range.

Factoring in the recent sales up-tick, the company said that sales had been flat thus far in the current year. However, the retailer again tempered any over-optimism with a note of caution that the market remained competitive and that "underlying cost growth continues to be challenging".

As part of its recovery plan, Bhs is investing £100m in a plan to refurbish its 150 stores and has been encouraged by the results. Sir Philip said sales were 12 per cent higher at the 13 stores it has revamped compared to the rest of the group.

As a result, the company will accelerate its refurbishment programme with six store overhauls due to complete within the next two weeks and up to 25 in the first three months of 2008. "In light of a very encouraging start, it is sensible to drive it on faster," the retail tycoon said. As a result of its investment in getting the business back on track, Sir Philip won't pay himself a dividend this year. "We've got to fix the business – that's our main focus. We don't need the money," he said. The Bhs owner controversially paid his family a £1.2bn dividend in October 2005.

The company expects to be debt-free by Christmas after reducing its borrowings to £62m from £115m last year, helped by its strong cash position. Sir Philip said that would remove any financial constraints on the company, meaning it could speed up its refurbishment plan or even move for a struggling rival given its "firepower".

Seymour Pierce analysts said the company had focused on improving its womenswear products since its travails early last year and that the range had improved "beyond all recognition". The range has been refocused on an older demographic and away from targeting young consumers with cheap, low-quality clothes, analysts said.