The Investment Column: Debenhams

TRADING IS tough for the clothing retailers at the moment, as investors in Marks & Spencer know to their cost. And even robust competitors like Debenhams have been feeling the heat. Debenhams, which was demerged from Burton at the beginning of 1998, reported disappointing sales figures yesterday with underlying sales in the 18 weeks to 17 July down 3.6 per cent. This was worse than analysts had expected, though there was better news on the margin, which has improved by 0.4 percentage points.

While several brokers trimmed their full-year profit forecasts to around pounds 135m, the City was encouraged by the margin improvement and comments by finance director Matthew Roberts that Debenhams is gaining market share.Costs have been kept down and discounting has also been reducing, which is no mean feat in the face of frantic price reductions by troubled M&S.

Debenhams had a look atStorehouse, the ailing Bhs chain but last month said it was not considering a bid. Growth instead will come from store openings, though the City will be looking for evidence of organic sales growth to put more momentum behind the shares. The stock has lost more than 20 per cent of its value since April. Down 9p to 394p yesterday, the shares trade on a forward multiple of 16. A shift to higher-margin, own-bought sales as opposed to concessions will provide downside protection. A decent bet in a difficult sector, though M&S remains a loose cannon.

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