Debenhams'designers boost its performance

Fourth-quarter sales hit by changes to trading space

Debenhams said the biggest change to floor space in its history had given it greater control over its "own destiny", after it forecast a rise in annual profits.

The department store, which has 154 shops in the UK and Republic of Ireland, has moved 530,000 square feet of trading space away from concessions to its more profitable own-bought ranges – particularly Designers at Debenhams – over its fourth quarter to 29 August, although this disruption has dragged down its underlying sales.

Michael Sharp, Debenhams' deputy chief executive, said: "We moved that space because we have seen a strengthening of our sales and profit performance on own-bought and a weakening of concessions." For instance, Debenhams management were distracted sorting out problems related to the concessions backed by Icelandic banks, such as Principles, which collapsed into administration earlier this year.

While he did not refer to any brands, Mr Sharp said: "It gives us more control over our own destiny. We are less reliant on people running their businesses badly and it increases the exclusivity of Debenhams and improves margins, although the sales densities are lower [on own-bought]."

The department store said its Designer at Debenhams ranges, which include John Rocha and Jasper Conran, had continued to deliver "double digit" sales over the year, which helped to drive a gross margin uplift of 70 basis points.

The department store – which also has 52 international franchise stores, including in India, the Czech Republic and Saudi Arabia – yesterday confirmed it had added the designer Henry Holland to its stable of Designers at Debenhams. The H! by Henry Holland collection is aimed at shoppers aged between 17 and 25 years and will go into 60 stores and on its website next spring.

Own-bought ranges now make up about 80 per cent of Debenhams' products, but the disruptioncut its like-for-like sales – which strip out the impact of new space – by 3.8 per cent over the half-year, compared with adrop of 3.6 per cent for theyear. Tony Shiret, of Credit Suisse, said the 3.8 per cent fall in sales implied that like-for-likes were down by about 7 per cent in the fourth-quarter. But gross transaction value was up by 0.2 per cent for the year.

While Debenhams did not provide a figure, the City expects it to increase pre-tax profits to between £122m and £124m over the year to 29 August, a rise of as much as 13 per cent on last year's £110.1m. Mr Sharp said: "We think it is a very creditable set of results, particularly given that Debenhams' financial year coincided with the credit crunch, Lehman Brothers and everything else that has happened over the last year."

Debenhams – which in June raised £323m in a placing and open offer to take its debt pile off the agenda – said it had repurchased £61.4m of its debt at an average discount of 5.6 per cent at the year end. Matthew McEachran, an analyst at Singer Capital Markets, forecast that the department store's net debt was £596.6mon 29 August.

Looking ahead, Mr Sharp said Debenhams will be as promotional as last year in the run up to, andduring, the Christmas period,after a series of high-profile sales events last year. He added that these promotions tend to be planned six months in advance.

On the outlook for the sector, Mr Sharp said: "We are working on the basis that trading going forward will be as difficult as the last 12 months," adding that fear of unemployment was the factor most affecting consumer sentiment.

Sales counter: Waitrose powers ahead of rivals

Waitrose has again delivered the best sales in the grocery sector for the 12 weeks to 7 September, while Tesco continues to lag behind its rivals, according to TNS Worldpanel. The John Lewis Partnership-owned grocer posted barnstorming sales up by 11.2 per cent, driven by the launch of its Essential Waitrose value range in March.

The discounters Aldi and Lidl posted sales up by 8 per cent and 5.2 per cent respectively, much slower than their booming sales last year, said TNS.

Tesco's sales growth slowed to 4.6 per cent – behind the market growth of 5.2 per cent – despite a relaunch of its Clubcard loyalty scheme in August. The sales growth at the UK's biggest retailer is now less than half of Morrisons' 9.3 per cent, and also trails Asda's 7.8 per cent and Sainsbury's 7 per cent.

However, separate data from Nielsen for the same period indicated that Tesco's Clubcard 2 had boosted shoppers' spend per visit by up to 5 per cent.

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