House of Fraser plans to remain independent

House of Fraser, the department store retailer, has dismissed speculation of a possible merger with its rival chain Allders, saying it is happy to go it alone as an independent company.

The comments came after a profits warning from Allders last week which led to fresh rumours about possible consolidation in the sector.

John Coleman, House of Fraser's chief executive, who held fruitless merger discussions with Allders three years ago, said: "We're not in conversations with them, we've no intention of opening conversations with them."

Announcing doubled pre-exceptional losses of £2.7m in the seasonally weak first half, House of Fraser reported a slowdown in sales and said the dividend would be reviewed in the second half. The group said it was taking a cautious view on consumer spending going forward.

Like-for-like sales in the six months to 27 July were up by 3.7 per cent on the same period last year. But in the eight weeks to 22 September this had slowed to 2 per cent. The company said a special price promotion on Saturday had been designed to counter the impact of advertising by rivals such as Debenhams and not to shore up the current trading figures.

House of Fraser said it had already cut costs to combat slowing sales but said it would also benefit from margin increases on its own-label lines and an increase in sales at refurbished stores.

Mr Coleman said the company should meet the City's expectations of profits of £26.5m to £27.5m as long as like-for-like sales growth stayed at about current levels.

However, the market appeared sceptical and marked the shares down 2.75p to 50.75p. Nick Bubb, a retail analyst at SG Securities, said: "If this market is about avoiding risk then you have to say that House of Fraser is risky. It's got high debts and operational gearing as well as a patchy performance record."

The City was also unsure about the outlook for the dividend as the shares now yield 10 per cent. Mr Coleman expressed hopes of improving the payout. But David Adams, the finance director, commented: "We have seen the dividend as an expression of confidence but if the market continues to value us around 50p then we would have to question the dividend level."

House of Fraser said it had ambitious plans for growth. It already has 48 stores and has plans to open six more over the next four years. Refurbished stores are due to open in Gateshead on Thursday and in Birmingham next month where the makeover has caused considerable disruption.

Pre-tax losses were £9.4m after £6.7m of exceptional items. These included a £5.1m loss on the disposal of stores in Dundee, Aberdeen and Perth.