Debenhams ups online and international targets after profits rise

Debenhams has increased its expansion and online targets after it reported full-year profits rose both in the UK and overseas.

Group pre-tax profits rose 4.2% to £158.3m in the year to September 1. 

UK sales rose 2.6% to £2.2bn while like-for-like sales excluding VAT rose 2% in the department store chain’s domestic market.

International sales rose 2.7% to £503.4m while like-for-likes surged 4.6%. Group sales rose 2.6% to £2.7bn with like-for-likes up 2.5%. 

Group online sales increased by 39.8% to £250.6m. 

Chief executive Michael Sharp has upped its targets after a “good” year in a “very difficult market”. Debenhams’ medium-term target for online sales has been raised from £500m to £600m while the five year target for total franchise stores increased from 130 to 150. 

Debenhams’ Danish business Magasin du Nord delivered a “strong” performance with like-for-like sales growth of 4.6% in local currency during the year.

At year-end, the retailer was trading from 239 stores across 28 countries and online in 67 countries.

Debenhams said gross margin fell due to poor weather changing the sales mix towards health and beauty products, which has a lower gross margin than own brand clothing. Costs rose 2.7% due to investment in merchandising, marketing, customer analytics and increased costs associated with delivering online orders. 

The retailer intends to increase its marketing spend further in 2013 including a Christmas brand campaign for the first time in six years.

The retailer said that trading conditions had been “challenging” amid “depressed” consumer confidence. “Unseasonal weather in the form of a warm, dry autumn in the first half of the financial year and a cold, wet spring and summer in the second half undoubtedly impacted demand for seasonal products, particularly clothing,” Debenhams said. 

Sharp said: “We have made good progress in 2012, achieving higher sales and earnings growth despite a very difficult market. I believe the strong sales momentum we achieved in the second half of 2012 is clear evidence that our strategy to build a leading international, multi-channel brand is working and this has prompted us to be more ambitious with our medium-term targets for the growth of our online and international operations.

“Looking forward, we believe that customers are acclimatised to the new economic reality. While we don’t anticipate a significant change in the economic environment in 2013, we expect to make further progress during the year.”