Debenhams' shares fall nearly 8 per cent, but rival Asos sees UK sales soar

Record sales in the week before Christmas helped Debenhams avoid another disastrous festive season, although the retailer’s shares tumbled yesterday as it warned of falling profit margins.

The company issued a profits warning in December 2013 after customers fell out of love with its endless discount events. It later parted ways with finance director Simon Herrick, who was accused of imposing a “Santa tax” on suppliers.

Since then, the department store has cut back on promotions and improved its online business. This helped it post a 4.9 per cent rise in like-for-like sales in the four weeks ending 10 January and 2.4 per cent for the seven weeks ending on the same day.

Its online sales were up 125 per cent on Black Friday, the US import that led to heavily discounted sales across the retail sector.

Despite this, mild winter weather hit earlier sales, which fell 0.8 per cent over the past 19 weeks. Debenhams also said gross margins were likely to be at the lower end of City forecasts this year because sales of lower-margin goods such as beauty products rose before and during the Christmas period.

The warning spooked investors yesterday, sending the shares down nearly 8 per cent to 70p.

Kate Calvert, a retail analyst at Investec, said: “While it is encouraging that management stuck to its new trading stance with 10 fewer days on promotion, we continue to believe that Debenhams is strategically challenged and needs to reinvest further gross-margin opportunity back into the offer.”

In contrast, Asos shares rose 8.5 per cent yesterday after the online fashion retailer put last year’s warehouse fire and three profit warnings behind it, posting a 15 per cent rise in retail sales.

Its UK business was a stand-out performer, with sales rising 27 per cent, while its international operation was up by 5 per cent.

Analysts at Jefferies welcomed the update, saying: “There is a clear acceleration in momentum, senior management commentary is positive and Asos continues to develop the model well as it puts 2014 to bed.”

The company, which targets fashion conscious twenty-somethings, now has nine local language websites including the US, Australia, Russia and China. These had 9.1 million active customers at the end of December with 3.7 million based in the UK and 5.4 million overseas.

Ray Kelvin, the founder of another Christmas retail winner – Ted Baker, meanwhile, cashed in £4.7m-worth of share options yesterday, which had been granted to him under a 2009 bonus plan.

The fashion chain last week unveiled a 22.8 per cent jump in retail sales for the eight weeks to 3 January.