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Debenhams pre-tax profit drops 5.4%


Department store group Debenhams has today reported a pre-tax profit drop of 5.4 per cent to £120.3 million in its half year, blaming January’s snow for the slump.

UK EBITDA declined to £147.4 million in the 26 weeks to March 2nd 2013, down 3.5 per cent year-on-year as operating profit in the domestic market plummeted 6.8 per cent to £104.8 million and UK like-for-like (LFL) sales declined 1.1 per cent.

Despite high promotional activity on the high street over the peak Christmas period, December LFL sales rose by five per cent, thanks in part to Debenhams’ first festive marketing campaign in six years.

Snow severely disrupted trading during the final fortnight of January though, marking the end of the retailer’s Winter sale and UK LFLs dived 10 per cent during that period.

Despite promotions during February to counter-balance the problem, the group noted that “this was not sufficient to recover all those sales lost in January.”

However, UK sales rose 3.9 per cent over the half to £1.07 billion while group sales climbed 3.6 per cent to £1.2 billion and group LFL sales increased 3.1 per cent, driven by UK online LFL growth of four per cent.

Commenting on the results, Debenhams CEO Michael Sharp said: “We made progress during the first half although snow in late January meant we did not achieve the profit outcome we had expected.

“LFL sales grew for the fourth consecutive half and we saw positive market share momentum in key categories.

“Our multichannel activities continued to grow with online sales increasing three times faster than the market.

“The transformation of Oxford Street into our international flagship store is on time and on budget.”

By the end of the first half, Debenhams had opened a further two stores in the UK and modernised nine, while a further five refurbishments are due to be completed by the Summer, ahead of a further seven improvements starting later in the second half.

Despite a tough market, Debenhams saw market share gains in both clothing and non-clothing and also saw a boost to its international operations.

International sales rose two per cent to £206.2 million while operating profit increased 1.3 per cent to £22.7 million, despite varied trading environments across franchise markets.

Six new international franchises were opened during the period though a dozen were closed, including six in Romania due to “an extremely difficult market”, resulting in a £3.8 million write-off for the company, while international EBITDA fell 1.4 per cent on a year earlier.

Nonetheless, the group is on track to open 150 stores in five years, as outlined in its four-pillar strategy announced last year.

In line with this strategy aimed at boosting profitability, the group worked to increase availability of its multichannel operations, with group online sales jumping 46.2 per cent to £194.4 million, representing 12.7 per cent of total sales.

M-commerce continues to be its fastest-growing channel, up 265 per cent on the same period last year and Debenhams is also focused on building its fulfilment and delivery options in time for Christmas 2013.

Looking ahead to the second half, Sharp commented: “We expect to make further progress in the second half despite consumer sentiment remaining weak and challenging market conditions.

“We are committed to the opportunities afforded to us by the four pillars of our strategy to build a leading international, multi-channel brand.

“We are sure that this strategy is right for Debenhams and of the benefits it brings to the business and its shareholders.”

Published on Thursday 18 April by Editorial Assistant

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