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Debenhams profits up 10% but sales flat

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Full-year results for department store group Debenhams published today show a ten per cent increase in headline profit before tax (PBT) for the 53 weeks ending September 3rd 2011.

Subtracting the extra week added this year and comparing on a 52-week like-for-like (LFL) basis, PBT ended the year at £157 million, a 4.4 per cent rise year-on-year and a solid performance considering the weak trading environment.

LFL sales grew 1.2 per cent including tax but fell 0.3 per cent with tax excluded in the 52-week year, whilst gross margin for the group, which includes Danish retailer Magasin du Nord, dropped 20 base points.

Michael Sharp, CEO of Debenhams, described the past 12 months as an excellent year in which the company showed the “resilience of the department store model” but also warned of tough times ahead.

“It is right to remain cautious about the strength of consumer confidence over the next 12 months given the uncertain economic outlook,” Sharp said.

“We will therefore continue to run the business with tight management of costs and stocks, retaining as much flexibility as possible in the supply chain to enable us to deal with whatever the market presents. We will take a pragmatic approach to trading and continue to focus on maximising cash profit.

“Overall we are optimistic about our prospects and believe we have a clear strategy to build the business into a leading international, multichannel retailer.”

Debenhams also announced today the resignation of Finance Director Chris Woodhouse , who Sharp praised for his “significant role in the development of Debenhams over the past eight years”.

Woodhouse is leaving to focus more fully on his chairmanships of both chain restaurant operator Gondola Group and lingerie specialist Agent Provocateur, and is to be replaced in the new year by former Northern Foods and Kesa Electricals director Simon Herrick.

This represents the second senior departure in a matter of months for the retailer after experienced CEO Rob Templeman left the company to become the new Chairman of the British Retail Consortium.

Sharp, who officially took over from Templeman last month, is still looking to expand the business in its core UK market with one new store confirmed for 2012 and another nine contracted and 30 more which are under discussion.

Over the year net debt has been reduced by £133.1 million to £383.7 million and basic earnings per share have jumped 21.3 per cent to 9.1p, but David Jeary and Bethany Hocking, analysts for Investec Securities, still have some concerns over the retailer’s domestic operations going forward.

“We have long been of the view that the combination of self-help measures and the astute Magasin acquisition (with its margin upside) would underpin solid earnings progress relative to undemanding valuation metrics,” Jeary and Hocking explained.

“However, the profile of the underlying operating profit performance from the core UK business - down ten per cent on a 53 on 52 week basis - raises questions on the efficacy of self-help measures and their potential over the medium term.”

Published on Thursday 20 October by Editorial Assistant

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