Debenhams trading slightly better than expected

LONDON Tue Jan 10, 2012 8:24am GMT

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LONDON (Reuters) - Debenhams (DEB.L), Britain's No. 2 department store group, posted a better than expected performance in underlying sales in the last 18 weeks, proving it could trade well through even the most difficult of conditions.

Shares in the group rose 8 percent after it said it had enjoyed record sales in the final week before Christmas, as its diverse range of products from cosmetics to clothes and homewares appealed to cash-strapped consumers, while its online channels also proved popular.

The group said its level of discounts had been in line with the previous year, despite many rivals increasing their offers, and that due to a pragmatic approach to the promotional and product mix, its guidance for gross margin would remain unchanged at flat.

"We've succeeded in a very difficult market and have made a good start to the new year," Chief Executive Michael Sharp told reporters. "(This) clearly demonstrates that we can trade well in even the most challenging of environments.

"2011 was my 36th Christmas as a retailer and it's no exaggeration to say that it was probably the most difficult of all I've traded to call."

In total, sales at stores open over a year excluding VAT sales tax were flat in the 18 weeks to January 7.

That compared with analysts' consensus forecast of sales down 0.9 percent from a range of flat to down 3.2 percent, according to a Reuters poll of nine.

Sharp said that much of the group's appeal was based around its wide range of products, meaning that shoppers not willing to spend large sums on new clothes or shoes were perhaps willing to buy lipstick or perfume.

He noted however that the group would remain cautious for the rest of 2012 although he said it was difficult at this stage to know whether consumer behaviour was being affected by concerns over the economy or the change in the weather compared to last year.

Warmer weather throughout October and November hit the sales of seasonal products, meaning that the group chose to discount coats and jumpers in the run up to Christmas.

The news could boost sentiment on the British high street as many retailers appeared to have had a tough Christmas, using sales to lure customers who are struggling with rising prices, muted wages growth and government austerity measures.

Many do not expect 2012 to be much better.

The strategy by Debenhams, ranked second in the UK after employee-owned department store chain John Lewis JLP.UL (BB90_p.L), is to drive profits by investing some of its gross margin, through price cuts and promotions, into pushing sales.

Shares in Debenhams were up 4.6 pence at 61.6 pence at 08:22 a.m. BT.

(Reporting by Kate Holton and James Davey)

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