Connect to share and comment

UPDATE 2-Debenhams sacrifices some profit to lure wary shoppers

Thomson ReutersEnlarge
(/GlobalPost)

* 5 weeks to Jan. 5 underlying sales up 5.0 pct

* 18 weeks to Jan. 5 underlying sales up 2.9 pct

* FY gross margin guidance reduced to up 10 basis points

* CEO says Xmas market most competitive in 37-year career

* Shares down 6.3 pct, having doubled in last 12 months

(Adds detail, CEO, analyst comment, shares)

By James Davey

LONDON, Jan 8 (Reuters) - Debenhams sacrificed some
of a planned improvement in profit margins to lure Christmas
shoppers with cut-price deals, highlighting the pressure on
Britain's retailers as they struggle with subdued consumer
spending.

An industry survey on Tuesday said underlying British retail
sales rose just 0.3 percent year-on-year in December. That is
well below the rate of inflation, suggesting stores sold less in
real terms, and increases the chances that the economy
contracted in the last three months of 2012.

Debenhams, Britain's second-biggest department store chain
after John Lewis, said it achieved record sales over
the holiday season, driven by strong growth in online trading.

But the group said it had to step up promotions to win
shoppers grappling with rising fuel prices, muted wages growth
and uncertain job prospects. As a result, its gross profit
margin for the 2012-13 fiscal year was likely to rise 10 basis
points, rather than the previously assumed 20 basis points.

"Strong sales, but at a cost," Espirito Santo analysts said
of the performance, adding the lower guidance on margins could
reduce full-year profit forecasts.

Debenhams shares, which have doubled over the past year,
were down 6.3 percent at 109.7 pence by 1145 GMT.

"Christmas shopping came very late, not only did customers
have less money to spend, they've now become acclimatised to the
new economic reality. They were extremely canny about how they
spent their money," Chief Executive Michael Sharp said,
describing the trading environment as the most competitive he
had seen in his 37-year retail career.

Debenhams' figures came a week after John Lewis posted
bumper Christmas takings and clothing retailer Next
raised profit guidance after a solid holiday season.

Sharp said Debenhams' performance, when compared with the
survey from the British Retail Consortium, showed the firm was
"definitely winning and somebody else is losing big time."

Britain's biggest clothing retailer Marks & Spencer
is forecast to report a decline in general merchandise sales
when it posts quarter figures on Thursday.

ONLINE SALES

Debenhams' sales at stores open over a year rose 5.0 percent
in the five weeks to Jan. 5, with like-for-like sales in the 18
weeks to Jan. 5 - a big chunk of the firm's fiscal first half -
up 2.9 percent.

That compared with analysts' average forecast for the first
half to end-February of an increase of 2 percent.

As was the case with John Lewis, growth was boosted by
strong demand online, with sales over the 18 weeks up 39
percent, ahead of the firm's expectations.

Online sales now account for 12.6 percent of Debenhams'
total sales, up from 9.3 percent this time last year.

"Mobile was a huge story this Christmas, 36 percent of the
traffic to the website came via mobile devices," Sharp said.

He dismissed comments from Next, which had said there were
fewer promotions in the shops compared with Christmas 2011.

"I think they (Next) need to get out a bit more," he said.

"It's quite plain that the market was more promotional than
last year. All our major competitors were doing
non-like-for-like promotional activity."

Debenhams said it was on promotion for two more days in the
18-week period than in the previous year, including one-day
specials offering discounts of up to 50 percent.

"Debenhams is suffering from the extremely promotional
backdrop we saw pre-Christmas and are continuing to see," said
Panmure Gordon analyst Jean Roche.

Sharp was confident Debenhams' like-for-like sales momentum
would continue through the balance of the fiscal year, helped by
its breadth of products, appeal to a wide range of customers and
well-received marketing campaigns.

For a FACTBOX-How UK retailers fared over Christmas, please
click on:

($1 = 0.6218 British pounds)

(Reporting by James Davey; Editing by Kate Holton and Mark
Potter)

http://www.globalpost.com/dispatch/news/thomson-reuters/130108/update-2-debenhams-sacrifices-some-profit-lure-wary-shoppers