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Debenhams remains strongly cash generative
20
Sep '10
Debenhams plc, the leading department store group, provides the following trading update for its 2010 financial year, comprising the 52 weeks to 28 August 2010.

Sales and Market Share
Gross transaction value for the year increased by 9.6% compared with the previous year including Magasin du Nord1 ("Magasin") and by 1.4% excluding Magasin.

As expected, we saw a recovery in like-for-like sales in the last 10 weeks of the year which resulted in like-for-like sales for the 52 weeks which were flat on last year. Like-for-like sales were impacted throughout the year by c.1.5% due to the strategy of improving gross margins by increasing the penetration of own bought trading space, which involved the conversion of over 530,000 sq ft of trading space from concessions to own bought in the fourth quarter of 2009. We have continued with a strategy of tight stock control focusing on cash gross margin as a first priority.

Market share gains were achieved throughout the year in menswear and childrenswear (source: Kantar Worldpanel Fashion 24 weeks market share data to 18 July 2010 vs. 2009). Womenswear share was impacted in 2010 by lower own bought sales densities arising out of last year's space moves. This will anniversary as we move into the first quarter of 2011.

Gross Margin and Profit Expectations
Consistent with the last interim management statement issued in July 2010, we anticipate that gross margin will exceed previous guidance. This has been driven by our strategy of growing cash margin through focusing on product mix and gross margin improvement alongside our ongoing focus on tight stock control and markdown management which has resulted in historically low terminal stocks. Gross margin has continued to make strong progress in the final weeks of the year.

In light of the strong gross margin performance, headline profit before tax and exceptional items2 for the year is expected to be in the region of £150 million, an increase of some 20% over last year and up over 35% on a two year comparison.

Strategic Initiatives
Throughout the year, Debenhams has focused on its key strategic aims around the areas of product strategy, space expansion, multi-channel development and balance sheet management.

In line with our product strategy of increasing our own bought offer, several new brands have been launched in recent weeks to add to the year's other successful introductions including Principles by Ben de Lisi and H! by Henry Holland. These include menswear casual brand Fit For Purpose (FFP) and two new Designers at Debenhams collections both in the Home department, namely House and Home by Lisa Stickley and Butterfly Home by Matthew Williamson.

Six new stores were opened during the year, comprising three department stores and three Desire stores. The store portfolio at the end of the year comprised 147 department stores, 13 Desire stores and six Magasin stores. In addition, there were 60 international franchise stores in 23 countries. Since the year end a new department store has opened in Bath. The store refits which commenced in 2010, including the major city centre stores in Glasgow and Manchester, will complete on schedule and we will see the full benefits of these in the new financial year. A further five refits will be completed in time for the start of peak trading.


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