Debenhams Returns to Profit after Shaky Start to the Year

Posted on 19 September, 2013 by Kirsten Kennedy

In the battle of the department stores John Lewis has been the undisputed champion for some time now, even managing to achieve record sales in the midst of a recession. By contrast, chains such as Debenhams have struggled to win over cautious consumers, with a significant drop in spending forcing the retailer to post a profits warning in March.

However, it appears that Debenhams may have put its troubles behind them, with the latest results indicating a positive return to strength. In a trading report released this week, the retailer revealed that like for like sales increased by 1.9 per cent in the 10 weeks to August 31st and profit margins have been steadily improving in the six months since the profits warning.

This allowed Debenhams to post a like for like sales increase of 2 per cent for the full year to August 31st, certainly indicating that the retailer has taken huge steps towards recovery following four years of recession. However, it is expected that pre-tax profits for the financial year will fall to around £153 million – a direct result of the profits warning which has blighted Debenhams’ otherwise positive year.

Chief executive Michael Sharp believes the recent boost in sales indicates that the poor weather at the start of the year was the major factor in what he calls a “one-off profits warning.” Yet he remains cautious regarding the retailer’s future given the unpredictable state of the consumer market.

He says; “Looking forward, we are confident in our strategy but are not expecting any rapid recovery in consumer sentiment and the marketplace remains highly competitive.”

The department store’s success was largely driven by a 46.2 per cent growth in internet sales, with this factor undoubtedly playing a significant role during the period of heavy snow which hit early in the year. Mr Sharp believes that online shoppers are attracted by the uniqueness of its Designers at Debenhams range, which makes up 50 per cent of all stock and features names such as Jasper Conran and John Rocha.

Although Debenhams ends the financial year in a more positive position than at the beginning of it, it seems doubtless that John Lewis will continue to dominate the department store market for the foreseeable future. Should Debenhams manage to identify and emulate the qualities which draw consumers to its larger rival, the next financial year could prove even more profitable for the retailer.

Do you think that, if Debenhams cleverly utilised promotions and sales, it could ever knock John Lewis off the top spot, or does the UK’s most popular department store chain have too loyal a consumer base for this to be possible?

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