Debenhams will post an up-beat first-half trading update on Tuesday amid growing City speculation that it is looking to buy Finland's Stockmann chain of department stores.
Analysts at Investec forecast a pre-tax profit of £116m up on £101.7m a year earlier, calming fears that bad weather had affected sales. The first half is the most important for Debenhams as it includes Christmas sales.
"Trading has been better than expected," said David Jeary, an Investec retail analyst, adding: "There has been a healthy increase in gross profit margin."
Investec forecasts full-year pre-tax profits of £141m from turnover of £2.57bn for 2010, up on last year's £125.2m profit.
James Monro of Standard & Poors Equity Research said of the Finnish chain speculation: "Stockmann is a good acquisition target. Basically it's the Finnish Debenhams. It's a good time to get there, before their stock price shoots up."
Stockmann runs 120 fashion stores in Finland under the Seppala brand, plus seven own brand department stores. It also operates in Lithuania, Latvia, Estonia and Russia. Mr Monro said that it would provide Debenhams with an "excellent foothold" in the Russian market which has vast potential as consumer credit begins to flow.
Stockmann's portfolio also boasts Swedish clothes giant Lindex which it acquired in 2007. The brand has close to 400 stores spread throughout Europe, the Middle East and Russia.
Debenhams is also rumoured to be looking at tie-ins closer to home. "The market has wondered if there is a deal to be done with House of Fraser," said Mr Jeary, adding: "It's possible."
Shareholders also expect to be updated on how the chief executive, Rob Templeman, and his team plan to deal with Debenhams' debts. "Our view is that the debt burden of £500m is still large compared to competitors, though capital raising has reduced it and raising more will be simpler," said Mr Jeary.
Debenhams management has hinted that debt for the first half would be lower than the £525m forecast. The chain finished the shortened trading week up 3.3p at 78.95p.
House of Fraser has been boosted by the news that Atradius, the credit insurer that pulled cover to the retailer during the recession, is once again offering suppliers insurance against its collapse. Atradius had previously refused to reinstate cover to suppliers despite an upturn in House of Fraser's fortunes since the turn of the year.
A spokesman for the chain said that cover had returned following a 10 per cent jump in like-for-like sales for the past nine weeks, with online revenues increasing by 200 per cent. He added that its house brands division had also prospered with sales up 100 per cent over the same period.
News of Atradius's decision comes ahead of the publication of credit insurance figures from the Association of British Insurers next week, which will show that claims from such policies rocketed by 95 per cent during 2009 compared to the previous year.
Credit insurers paid out claims worth £320m in 2009, up from £164m the previous year. "While trade credit insurers paid out a record amount during 2009, [the fourth quarter] marked an improvement with the number of new claims down 23 per cent on the previous quarter" said Nick Starling, the ABI's director of general insurance and health.