Debenhams fails to benefit in recovery as profits slide

Debenhams customers know about the economic recovery in the UK, but are not turning that into extra spending, the department stores chain warned yesterday as it reported a 25 per cent fall in profits.

"Talking to our customers it is clear that they are very aware of all the positive economic indicators in the press and on TV," its chief executive, Michael Sharp, said.

"They see all that and inflation starting to come off. They understand it but none of that is translating into how they manage their weekly or monthly budgets.

"We are very cautious about the strength of the UK consumer recovery over the rest of the financial year."

Debenhams issued a profits warning on New Year's Eve followed rapidly by the departure of its finance director, Simon Herrick, who, it emerged, had written Santa letters to suppliers asking for extra price discounts.

Mr Sharp said that the 240-strong chain had seen lower-than-expected clothes sales against "overambitious" targets, deeper discounting and the fact that it lagged behind rivals in online selling.

Sales rose 2.1 per cent in the 26 weeks to 1 March with the UK up just 1 per cent and overseas up 7 per cent.

Pre-tax profits fell 25 per cent to £85.2m, as it warned at the end of December. Debenham shares rose 4 per cent to close at 81p.

He also said the group was still talking to Mike Ashley's Sports Direct, which has an option to buy a 6.6 per cent stake in Debenhams.

Mr Sharp said: "Our customers buy sportswear and we only have a small sports business so we are talking about any potential opportunities with Sports Direct."

Meanwhile House of Fraser, in which Sports Direct grabbed an 11.1 per cent stake at the same time that China's Nanjing Cenbest took control, revealed far stronger trading.

Its sales rose 3.6 per cent to £1.3bn in the year to 25 January with its headline earnings up 8.3 per cent to £60.2m.

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