The UK high street is 'alive and well', Debenhams says

Retailer has stores in 25 countries. It plans to double its franchise shops abroad over five years

The department store Debenhams and better-than-expected retail sales data have provided the UK's beleaguered high street with some much-needed cheer ahead of the crucial Christmas trading period.

Debenhams unveiled a 10 per cent rise in pre-tax profits to £166.1m for the 53 weeks to 3 September, a share buy-back and said it was "optimistic" about its prospects. The retailer also revealed extensive plans to grow its store numbers in the UK and overseas, as well as expanding online.

Meanwhile, the Office for National Statistics said that UK retail sales volumes rose by a surprise 0.6 per cent in September – compared with forecasts of a flat performance – boosted by purchases of laptops and video games, after the riots in August disrupted trading. But the massive impact of inflation was laid bare in sales by value rising by 5.4 per cent in September compared to the same month last year.

Despite this, Michael Sharp, the chief executive of Debenhams, struck a confident tone on the group's prospects. The group is to increase its store presence in the UK significantly at a time when many retailers are axing shops to shore up their finances. The high- street stalwart only has 163 UK stores and believes there is scope for 240 as it seeks to take advantage of the soft property market. The UK high street is "alive and well", he said.

Mr Sharp said: "Property developers have responded with some deals that make commercial sense."

Debenhams, which has stores in 25 countries, from Kazakhstan to Indonesia, also plans to double its franchise shops overseas from 65 to 130 over the next five years.

Another tonic was that Debenhams returned Magasin du Nord, the Danish department store it acquired in 2009, to profit. Total group sales rose by 2.9 per cent to £2.68bn.

Debenhams' profits were boosted by a major shift to own-brand products, although its like-for-like sales fell by 0.3 per cent. However, it benefited from lower financing costs after reducing its net debt by £133.1m to £383.7m. This improvement in its capital structure allowed Debenhams to pay a total dividend of 3p, following a three-year hiatus. With lower debt, Mr Sharp said the share buy-back scheduled for the second-half of 2011-12 is the "most efficient way of managing the balance sheet" and returning cash to shareholders.

However Debenhams shares tumbled by 4.9p, or 8 per cent, to 67.60p.

While Mr Sharp was "cautious about strength of consumer confidence over the next 12 months", he said its new gift ranges had "got off to a good start" ahead of Christmas. He added it will "trade the business as hard as possible".

But for the fashion sector, the ONS data will raise alarm bells. The warm weather at the end of September contributed to textile, clothing and footwear sales volumes tumbling by 2.1 per cent last month – the biggest fall since April 2008.