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Debenhams drives first half margins and profits

Debenhams’ commitment to driving its own-label ranges and managing markdown in its first half helped it to offset some of the cost pressures endemic in the clothing sector and increase margins, the department store said.

Debenhams said it grew gross margin in the 26 weeks to February 26 in line with management expectations by increasing its own-bought sales mix and keeping its stock densities controlled. It said that terminal stocks would be at an all-time low at the end of the half.

Higher margins, combined with the benefits of a lower interest charge, offset the negative impact of the severe December weather and the running costs of the department store’s investment in a new distribution centre which will be operational by the end of the calendar year.

First-half pretax profit are set to be ahead of last year and in line with management expectations, the department store said, but it remains cautious on the outlook for the second half of the year.

Sales grew 3.2% in the 26 week period, with like-for-likes flat including VAT, and down 1.5% excluding VAT.

The department store said the reaction to the launch of its designer collaboration Edition for spring 11, with womenswear collections from Jonathan Saunders and Preen and an accessories collection from Jonathan Kelsey, had been “extremely positive”.

It has also launched younger womenswear range Diamond by Julien Macdonald and menswear range J Jeans by Jasper Conran.

Sales from Debenhams Direct surged 82.4% excluding VAT in the period, during which the business improved it multi-channel access points, a key focus going forwards.

Debenhams completed five store refits in the first half and is planning another four to six in the remainder of the year.

Debenhams chief executive Rob Templeman said the performance had been “pleasing” in the light of the challenging trading environment.

He said: “Our strategy of increasing own bought sales, as well as focusing on profit and cash generation, has again delivered margin gains despite the significant headwinds being experienced in the clothing sector supply chain.

“Looking forward, it is clear that disposable income is under pressure from inflation, public sector spending cuts and higher taxation. 

“As a result, trading across the UK high street is likely to be difficult in the second half of the year.” 

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