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Debenhams' resilience shows fashion sector the way

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Market analysts predict leading department store retailer Debenhams will post an increase to sales in third quarter results tomorrow, giving some much needed good news to the industry.

Investment baking group Matrix expect a one per cent increase in like-for-like sales in Debenhams’ report, steady considering the state of the sector, helped by an increase in gross margins.

By passing on to customers the costs of January’s VAT increase Debenhams has managed to outperform rivals who have decided to concentrate on keeping prices low.

Tom Gadsby, analyst at Matrix, said: “While the retail sector is under a grey consumer cloud at the moment, we see the clothing subsector dividing into the ‘haves’ and ‘have nots’.

There are those that have passed on raw-material increases to consumers, thereby preserving both top line and margin, and those that have not passed on the underlying inflation.”

Fashion retailers H&M and Primark fall into the second category according to Gadsby, which has led them to posting profit warnings, whilst Debenhams remains a good investment because its has managed to increase gross margin by 20 base points.

Store closure plans and administration procedures announced by Jane Norman and TJ Hughes this week show the precarious situation of many within the market right now but it appears that sound management is keeping Debenhams pretty secure.

The retailer’s dividend is expected to be around 1p per share at this interim stage and with debt at a well controlled level it is one business at least not worrying investors.

Gadsby added: “We do not expect any major changes to the direction of the group; rigorous stock controls and a changing product mix are driving up gross margins, and we believe the company is on track to meet full-year profit forecasts.”

Published on Wednesday 29 June by Editorial Assistant

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