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Debenhams comes under fire from City

Debenhams' growth plans and its acquisition of Irish department store chain Roches are likely to hit profits in the next few years, according to retail analysts.

Bank Goldman Sachs ranked the 120-store chain, which floated last May, bottom of a clothing league table of nine international retailers. It rated their performance in the UK based on earnings growth, expansion potential and balance sheet strength. It has cut the retailer's earnings forecasts by 3% for 2007 and says higher rental costs at newer stores and the acquisition of nine Roches stores in August will affect performance.

The bank's report cites underinvestment in stores and damage to the brand from aggressive promotions as barriers to like-for-like sales growth. Although Debenhams' gross margin is forecast to rise, it faces pressure from higher clothing markdowns, the lower proportion of clothing in Roches stores, and promotion on Roches stock bought at a higher price.

Investec analyst Mark Charnock said: "To roll Debenhams back to where it should be before it started going heavy on promotions would take a long time, but there's no indication that it plans to go back. It should try to get the basics right before it expands."

Numis analyst Steve Davies said: "It's not the only retailer finding it difficult to get like-for-like growth. Promotions have worked well; it just has to ensure it doesn't overshadow its Designers at Debenhams offer."

Debenhams declined to comment on the Goldman Sachs report. Zara owner Inditex came top of the ranking, followed by H&M, Next, Marks & Spencer and Benetton.

In a separate Goldman Sachs survey of clothing retailers, which quizzed 500 UK shoppers, Zara scored best overall on quality, price and design. Tesco and Next followed, with M&S best for quality and best overall improver. Debenhams was seventh overall.

Debenhams launched to the stock market in May at 195p per share, but has struggled to maintain that price level.

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