Debenhams said it expects to beat consensus pre-tax profit estimates at its full-year results next month, despite a flat sales performance in the year to September 3.
Across the department store group, like-for-like sales – excluding VAT – fell by 0.3 per cent compared with the previous year, management said in a full-year trading update on Tuesday. However, a strong performance from its Danish business suggests the UK sales decline was much steeper.
Michael Sharp, chief executive, said the group would not “break down the level of detail” until full-year results in October. “Although the UK market’s obviously been challenging, our performance in context of that has been good,” he said.
He defended Debenhams’ decision to start its summer sale five days early, noting that group like-for-like sales rose by 0.4 per cent in the past nine weeks of trading, adding “it was an opportunity to get ahead of the market”.
On Monday, shares in French Connection dropped 12 per cent when management said the trend for earlier sales had caused a greater level of discounting this summer, which dragged its gross margin down.
Debenhams’ Danish department store business Magazin du Nord has increased like-for-like sales 4.8 per cent on a sterling basis since it was acquired in November 2009, and Mr Sharp said: “We will be reporting a very good margin story in October.” Overall, group margins are expected to be 20 basis points lower than last year.
House broker Citigroup lifted its headline pre-tax profit forecast to £163m-£164m, against a consensus of £158m.
“Debenhams hasn’t really delivered on its promise of better like-for-like sales growth in the last financial year, despite the benefit of all their store refits and new own-label ranges,” said Nick Bubb, retail analyst at Arden Partners. “Its rating deserves to be lower than the retail sector average, as it hasn’t got any freehold property assets, debt levels are still relatively high and it always seems to be discounting.”
By mid-afternoon on Tuesday, Debenhams shares had lost 0.65p to 58.65p, a fall of just over 1 per cent.
● FT Comment
Profit upgrades are a rare thing in the retail sector, but there was a lukewarm reaction, with shares slipping back following a small intraday bounce. The current price/earnings ratio of 6 times is low for the sector, but the market is clearly nervous about the future margin impact if Debenhams has to discount further to win sales. With its own ranges now accounting for 50 per cent of revenues, there are not many more self-help levers to pull, so shares look fairly priced.
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