Debenhams profits up despite lower sales

Debenhams today said profits were up on last year after the department store chain achieved a "creditable" Christmas trading performance.

The group, which has 153 stores in the UK and Ireland, posted a 3.3 per cent drop in like-for-like sales for the 12 week period since 21 October.

However, this compared with a decline of 4.2 per cent for the previous six weeks and meant profits for the 18 week period improved on a year earlier.

Chief executive Rob Templeman said: "Our trading strategy for the first 18 weeks of the year has resulted in further market share gains and a creditable sales performance given the extremely difficult and volatile conditions seen across the high street."

Debenhams said a 0.6 per cent improvement in total transaction values and the tight management of costs and stock levels drove the profits improvement.

It added that "tactical" promotional activity saw it focus on profit rather than sales generation.

Shares have been battered by trading and debt concerns, but the stock responded to today's better-than-expected update with a surge of 25 per cent.

Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers, said: "The update provides hope that Debenhams could eventually prove a survivor in the capacity excessive retail sector, although it still remains far too early to call a complete recovery."

Mr Templeman said: "More than ever consumers are looking for high quality products at good value prices.

"Debenhams has supplied this during the important Christmas trading period through ongoing improvements to our designs and products made over the past 18 months alongside tactical promotional activity."

The company said its Designers at Debenhams brands made a strong contribution to market share gains and the overall performance of the business.

Chairman John Lovering added that Debenhams would take "all the necessary steps" to ensure that the chain emerged as one of the strongest performers in the current trading conditions.

Debenhams said its debt levels were significantly lower than a year earlier, but the company did not provide any guidance on recent reports that it planned an equity fundraising in order to lower its borrowings.

Debenhams has debts of almost £1 billion after its former private equity owners heavily increased the company's debt burden.

About 60 per cent of the company's debt facility is held by four banks - Royal Bank of Scotland, HBOS, Lloyds TSB and Barclays. However, the fact that two of the banks - HBOS and Lloyds TSB - are due to merge makes it less likely that existing commitments will be maintained at current levels.