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Oct 20, 2011
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Debenhams eyes growth from more and better stores

By
Reuters
Published
Oct 20, 2011

LONDON, Oct 20 (Reuters) - Debenhams , Britain's No. 2 department store group, plans to accelerate store openings and modernisations, seeking growth in a tough retail market it does not expect to get any easier in the short term.

Debenhams
Photo: Corbis

Chief Executive Michael Sharp, who succeeded Rob Templeman in September, said on Thursday he believed there was scope for up to 240 department stores in the UK, up from 163 currently.

One new store will open in 2012 and a further nine are contracted from 2013. About 45 core UK stores will be modernised over the next two years.

Setting out his vision to make Debenhams a leading international multi-channel retailer, Sharp also detailed plans to develop its "Designers at Debenhams" range and increase product availability and choice through in-store ordering, mobile and Internet channels.

Debenhams, ranked second in the UK after employee-owned department store chain John Lewis , would expand overseas by doubling the number of franchise stores in distant and emerging markets over the next five years from the current 65, by acquiring assets closer to the UK, such as the Magasin chain in Denmark, and through worldwide online delivery.

Shares in Debenhams rose 6 percent as the market warmed to Sharp's strategy update, a better-than-expected 10 percent rise in annual profit and plans for a share buyback.

The company made an underlying pretax profit of 166.1 million pounds ($263 million) in the 53 weeks to Sept. 3, ahead of analysts' average forecast of 162 million pounds, according to a company poll.

Total sales, reported last month, rose 2.9 percent to 2.68 billion pounds, with sales at stores open over a year down 0.3 percent, and gross margin down 20 basis points.

The company's strategy is to drive profits by investing some of its gross margin, through price cuts and promotions, into pushing sales.

During the year it won market share in women's casualwear, menswear, childrenswear and premium health and beauty.

"It is right to remain cautious about the strength of consumer confidence over the next 12 months, given the uncertain economic outlook," said Sharp. "Overall we are optimistic about our prospects."

Liberum analyst Simon Irwin said the firm's outlook statement was "surprisingly upbeat, particularly given that trading conditions for the first seven weeks of the year must have been quite challenging".

British retailers are generally struggling as rising prices, muted wages growth and government austerity measures force shoppers to rein in spending on non-essential items.

However, official data on Thursday showed UK retail sales grew more strongly than expected in September.

Debenhams is paying a total dividend of 3 pence after paying nothing last year.

It ended the period with net debt of 383.7 million pounds, down 133.1 million pounds since the start of the year, giving year-end leverage of 1.4 times earnings before interest, tax, depreciation and amortisation (EBITDA).

Sharp said that as leverage moved closer to parity with EBITDA the board saw little benefit in reducing it further. It would instead return surplus funds to shareholders with a buyback programme in the second half of the 2011-12 year.

Shares in Debenhams, which returned to the stock market at 195 pence in 2006 after two-and-a-half years in private equity hands, were up 3.75 pence at 66.5 pence at 0906 GMT, valuing the business at 877 million pounds.

Debenhams also announced that Finance Director Chris Woodhouse would leave the business in January and be succeeded by Simon Herrick, the former FD at Kesa Electricals .

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