Debenhams deputy chief executive Michael Sharp has defended the department store chain’s shift to an own-bought strategy after a lacklustre response by the City to the department store’s current trading.
Despite posting a forecast-busting 18.6% rise in pre-tax profit and exceptional items to £123.6m in the first half to February 27, the City reacted coolly to Debenhams’ like-for-likes over the 31 weeks to April 3, which were ahead by just 0.3%.
Sharp said the modest sales increase followed the retailer’s efforts to shift store space to its higher-margin own-brand offer at the expense of its concessions. The consequent disruption in stores resulted in a 1.5% hit to like-for-likes over the period. Own-bought currently makes up 81% of the offer and Debenhams plans to grow it to 85% in the medium term.
“We have delivered on what we were telling people we were up to,” said Sharp. “We have focused on own brand, driving margins and used self-help levers. It is a margin story.”
Margin, excluding the acquisition of Danish chain Magasin du Nord in November, rose 140 basis points in the half. For the full year, Debenhams forecasted margin to come in at 80 basis points, up from previous expectations of a 50 to 60 basis point increase.
The current trading figures contrast with the British Retail Consortium’s Retail Sales Monitor, which said retail like-for-like sales rose 4.4% in March year on year, their fastest rate since April 2006.
Arden Partners analyst Nick Bubb said the results compared unfavourably with “buoyant double-digit same-store sales growth noises” from peers John Lewis and Marks & Spencer in March.
Seymour Pierce analyst Freddie George said: “Underlying earnings growth was pedestrian and is to remain so over the next two years. In addition, the own-label range has, in our view, been expanded far enough - consumers still want brands.”
However, Sharp said sales of its own-label Designers at Debenhams ranges rose 17.7% to £282.1m during the half. Own-bought sales increased 9.4%, while concessions sales decreased 22.5%.
Sharp said: “People are getting the concept of designer product at affordable prices.”