UPDATE: Debenhams 1st Half Profit Beats Hopes; 3Q Sales Rise

U.K. department store chain Debenhams PLC (DEB.LN) Thursday reported a better-than-expected 11% rise in fiscal first-half profit as it continued to grow market share and boost margins, and said sales had risen in the third quarter.

Debenhams said gross margin rose 10 basis points in the first-half ended Feb. 28 because of strong sales from its own floor space, while sales at the concessions which operate within its stores had underperformed.

The results, which confirm a significant turnaround for Debenhams, lifted its share price analysts upgraded their full-year estimates. At 0746 GMT, the stock was up 13 pence, or 20%, at 76 pence, by far the biggest riser on the FTSE 250. Shares in FTSE 100-listed rivals Marks & Spencer Group PLC (MKS.LN) and Next PLC (NEXT.LN) also rose strongly.

Debenhams is currently outperforming those peers, with its focus on cut-price designer clothing and accessories boosting its market share. In recent years it has performed badly as it struggled to focus its stores and match the sharper offering from competitors. It had been loaded up with debt by its private equity owners prior to its listing on the London Stock Exchange in May 2006.

It said it had cut net debt to GBP927.2 million by the end of the first half, from GBP979.3 million six months earlier. Debenhams will reduce it a further GBP100 million next month, with another GBP100 million payment due in May 2010, Chief Executive Rob Templeman said.

The CEO defended the group's decision not to pay an interim dividend, and rejected suggestions that the capital will be used to pay down its debt. Rather, the capital will be spent on new stores and any possible acquisitions.

"Unlike a lot of companies that pass on a dividend, we're passing on the dividend on the strength of trading and because we believe that capital will be deployed into better places going forward that give higher returns," he said.

Templeman said the capital will be predominantly spent on new stores, noting that there is roughly a 14% vacancy rate on the high street. Nine new Debenhams stores will open in the next two years, which will create 1,800 jobs.

The board will decide later this year whether it will pay a final dividend, he said.

For the six months ended Feb. 28, Debenham's profit before tax and exceptional items rose 11% to GBP104.2 million, from GBP94.1 million over the same period a year earlier. Pretax profit rose 11% to GBP102.2 million from GBP92.0 million a year earlier.

As previously reported, first-half sales from stores open more than a year, excluding value added tax, fell 3.6% from a year earlier - less than analysts' had expected. Still, revenue rose to GBP1.06 billion from GBP1.03 billion.

But in the first seven weeks of the third-quarter, same-store sales were up 1.9% from a year earlier as consumers snapped up the latest designer gear, including a GBP60 Julien Macdonald leopard print dress. The warmer weather also helped, Templeman said.

Company Web site: www.debenhams.com

-By Lilly Vitorovich, Dow Jones Newswires; 44-0-207 842 9290; lilly.vitorovich@dowjones.com

Debenhams (LSE:DEB)
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