Department store chain continues push on own-bought ranges and multi-channel strategy to combat pressures in the second half of the year.
Debenhams reported a 3.2% sales increase for the 26 weeks to February 26, 2011, while like-for-like figures down 1.5%.

Higher margins and lower interest rates helped offset the negative impact of the weather in December, said the retailer, while pre-tax profit is expected to be ahead of last year and in line with market consensus.

Debenhams was also able to offset pressures on gross margins from cost inflation, with its own-bought sales mix and management of markdown activities. As a result, the retailer reported an increase in gross margin compared with last year, and in line with management expectations.

The retailer's multi-channel strategy is moving forward, with sales from Debenhams Direct up nearly 83% in H1. Debenhams has worked on improving multi-channel access points with the launch of an iPhone app and Debenhams TV. The chain has also rolled out self-service order kiosks to more if its stores.

Debenhams chief executive Rob Templeman was pleased with the results but warned of difficult trading conditions in the second half of the year. "Our performance in the first half has been pleasing given the difficult trading environment. 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. We will continue to pursue the self-help measures we have been working on over the past two years - driving market share and cash margin through own bought product ranges, increasing multi-channel access points, improving the instore environment through refits - which will be beneficial to the business whatever the trading environment."

Credit Suisse believes the sales figures are reasonable, given the slowdown in general demand levels since mid-January. However, it is concerned that Debenhams' pricing strategy for the rest of the year is risky. "Debenhams has commented that it expected sell prices in the high street to increase by 6-8% in 2011 as cost of goods inflation comes through. We believe that Debenhams has put through 8% price increases. It believes it is seeing trading into its space from more premium retailers. We believe that the market is trading down more generally and that Debenhams is adopting a strategy that will look riskier as the year progresses."