Clothes give Debenhams a boost

By Mark Potter

LONDON (Reuters) - Debt-laden department stores group Debenhams posted a 3.5 percent drop in underlying sales for the 18 weeks to January 3, but said profits had risen due to tight stock control and demand for its designer clothes.

Britain's second-biggest department store chain, which returned to the stock market loaded with debt in 2006 after two and a half years in private equity hands, said on Tuesday like-for-like sales fell 3.3 percent in the last 12 weeks of the period, up from a 4.2 percent drop in the first 6 weeks.

It said pretax profits had risen over the 18-week period, but declined to give a figure and said the trading environment was likely to remain challenging.

Debenhams was at the forefront of retailers offering big discounts in the run up to Christmas, as they battle to lure shoppers who have been curbing spending amid rising unemployment, sinking house prices and fears of deep recession.

The Nationwide Building Society said on Tuesday that house prices plunged a record annual 15.9 percent in December and that consumer confidence also slumped.

Debenhams, which runs around 150 stores across the UK and Ireland, said it had taken market share, helped by the success of its "Designers at Debenhams" ranges and reduced its debts.

The firm's shares have plunged over 80 percent over the past two years on fears about its ability to pay off its borrowings amid deteriorating trading conditions.

The group, whose shares floated at 195 pence apiece in 2006, had net debt of 994 million pounds at August 30.