Next and Debenhams defy forecasts of retail meltdown

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The Independent Online

Retailers' shares soared and the sector breathed a huge sigh of relief yesterday, when some of the high street's biggest names unveiled Christmas trading figures that defied forecasts of a sales "meltdown" and raised hopes about the resilience of UK consumers.

New Look, the young fashion chain, and the Co-operative Group, the food retailer, posted buoyant sales, while the fashion giant Next, the department store Debenhams, and the value-furnishing specialist Dunelm posted declining sales that were no worse than the City had expected.

However, some analysts warned that the downturn had only just begun and a much clearer picture of trading conditions would emerge only after the high street bellwether Marks & Spencer – which is set to unveil jobs cuts of 1,000 – reports today.

Simon Wolfson, the chief executive of Next, said: "I just don't think we will see a general meltdown on the high street. There will be some restructuring and closures, but overall the high street will not look very different in one year's time."

For the period from 29 July to 24 December, Next posted like-for-likes sales down by 7 per cent, which was at the bottom end of the guidance it gave in November. The retailer added that its full-year profit for the year to January 2009 would be in line with market consensus. However, Mr Wolfson said the 2.5 per cent cut in VAT had had "no impact" on sales. Following the trading statement, Next's shares rose by 136p, or 12.47 per cent, to 1,227p.

For the 12 weeks since 21 October, Debenhams said that underlying sales fell by 3.3 per cent. Its gross margin was flat on last year.

Michael Sharp, Debenhams' deputy chief executive, conceded that the perception among some was that it had been "more promotional" in the run-up to Christmas, but he stressed this was not the case. "You can see with the margin that we were not more promotional than last year," Mr Sharp said.

He singled out the buoyant performance of its Designers at Debenhams ranges, such as soaring sales of handbags from Jasper Conran and Julien MacDonald, over the festive period.

He also responded to speculation about Debenhams' near-£1bn of net debt. "We are very aware that the leverage needs to be taken off the agenda," said Mr Sharp, but he reiterated management's previous comments about plans to reduce its debt levels this year.

For the 18 weeks ending 3 January, Debenhams grew its pre-tax profits on the same period last year, as a result of an improvement in its gross transaction value, tight management of costs and stocks, and a focus on driving cash margins. Yesterday, Debenhams' shares jumped by 5.75p, or 20.18 per cent, to 34.25p.

Meanwhile, underlying sales at Dunelm fell by 5.6 per cent for the 26 weeks to 27 December.

While Debenhams, Next and Dunelm posted falling sales, New Look grew its underlying sales by 2.8 per cent for the 14 weeks to 3 January. The young fashion retailer also improved its gross margin by 170 basis points.

Carl McPhail, chief executive of New Look, conceded that it had benefited from a younger customer base, which is often free of the financial constraints of a mortgage, but he stressed that the average age of its female customer was 33. Mr McPhail said: "All in all, we are reasonably pleased, but we are not complacent about the market in 2009 because it will be tough for the consumer."

Group sales at New Look jumped by 14.5 per cent, helped by its store expansion in the UK and Europe.

However, Nick Bubb, the Pali International analyst, said it was too early to call the Christmas trading period. "There is some relief, but the fact that two or three of the better-managed retailers have done well does not mean that the sector has done well."

He added: "The downturn is only just beginning – it is entrenched and will last for some time to come."

Both New Look and Next warned that the sharp recent sharp fall of the pound against the dollar – which will hit the cost of imported goods from the Far East – could add between 5 and 10 per cent to the price of products in its stores in the final quarter of 2009.

Meanwhile, The Co-operative Group delivered like-for-like food sales, excluding fuel, up 6 per cent for the three weeks to 3 January. Peter Marks, its chief executive, said the uplift had largely been driven by its store modernisation and refurbishment programme.

However, elsewhere the retail picture is less rosy. Viyella, the womenswear retailer with 120 stores and concessions, will make a statement today about the future of the business, but declined to comment further.

It has also emerged that JJB Sports, the struggling sportswear retailer, is paying full rent and associated costs, such as service charges, on 70 empty stores. Market sources estimated on an annualised basis this equates to JJB paying £25m for having stores empty, although its new chairman Sir David Jones is soon to conduct a review of its store portfolio. JJB declined to comment.

Experian, the data specialist, has forecast that one in 10 stores will be empty by the end of 2009. It also said that retail footfall for the week to 4 January fell by 10.4 per cent.

Yesterday, Woolworths closed the last of its 800 stores after 99 years on the high street. All of its 27,000 staff will soon be made redundant.

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