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Debenhams to beat profit expectations after strong final quarter

Department store group Debenhams expects to report profits ahead of consensus expectations after a strong finish to its financial year.

The retailer has also struck an agreement with British Land for a new London headquarters.

Debenhams posted like-for-like growth excluding VAT of 0.4% in the fourth quarter of the year to August 27, resulting in a 0.3% decline over the 52 weeks to that date. Gross transaction value was ahead 2.1% and 2.9% respectively.

The retailer said that gross margin will be flat to slightly down over the year but profit would be ahead of consensus, which was about £158m before the update.

Debenhams reported that it had made market share gains in key categories. Total clothing market share was up 50 basis points as were menswear and childrenswear. Womenswear was up 40 basis points.

Multichannel revenues climbed by 71.9%. Terminal stock reached “historical lows” of between 2.5% and 3%.

Chief executive Michael Sharp said: “Debenhams delivered a stronger performance in the final period of the year, delivering like-for-like sales growth in the last two months against tougher prior year comparators.

“We believe our decision to maximise cash profit by investing in top line growth has proven successful and this will result in headline profit before tax for the year coming in ahead of consensus forecasts.

“Looking forward, although we remain cautious about the strength of consumer confidence and the timing of an economic recovery, we will be focusing on the retail basics of giving our customers great products in an inspirational shopping environment, whether in our stores or through one of our multi-channel access points. We are therefore confident that we can continue to make progress over the coming year.”

The retailer has agreed terms to take 145,000 sq ft of office space in Regent’s Place, a British Land mixed-use development. The property is expected to be completed in 2013 and the Debenhams will occupy the space for 25 years without break.

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