Sales flat at Debenhams but profit set to improve

The department store Debenhams yesterday boasted robust progress on its profit margins after its sales flatlined over the Christmas trading period. Michael Sharp, the deputy chief executive, said: "Judge us on profitability, not on sales or market share growth."

His comments reopened the debate about the flurry of positive sales posted by retailers over the festive period, given that so far few retailers have revealed their profits.

Debenhams, which has 144 stores in the UK and Ireland, delivered underlying sales – on shops open at least one year – up by just 0.1 per cent for the 18 weeks to 2 January. But this was significantly behind rivals John Lewis and House of Fraser, which delivered festive sales up by 12.7 per cent and 7.1 per cent, respectively, albeit for shorter trading periods.

But last year, Debenhams flagged up that the huge shift in September of 600,000 square feet of floor space away from concessions – which have higher sales densities – to own-bought ranges would have a positive impact on cash gross profits, but dent sales growth.

The key own-bought range Designers at Debenhams, including Jasper Conran, Betty Jackson and Matthew Williamson, delivered "double-digit" sales growth over the 18-week period, said Mr Sharp. "In a recession, people are buying value and are not just looking for the cheapest," he said.

The retailer said that its performance on gross margins – the difference between the price a retailer pays for a product and the price it is sold for – has "improved significantly" over the same period last year.

Debenhams, which completed a £323m fundraising last year, largely to address concerns over its debt mountain, said it has made a further £75m voluntary repayment of gross debt in the last period. The City consensus is that it will end its financial year in August 2010 with net debt of £520m, compared to £590.3m a year ago.

On the outlook for the retail sector, Mr Sharp said: "It will be a tough year because there is obviously the issue around unemployment and what that might bring in terms of what will be needed to pay down the public deficit."