U.K. department store chain House of Fraser Wednesday reported improving sales growth, underpinned by a modest recovery in consumer confidence and its extensive product range, and said its looking to expand abroad via franchises.

Privately-held House of Fraser, which counts Icelandic banks Landsbanki and Glitnir as two major shareholders following the demise of Icelandic investment firm Baugur Group Hf earlier this year, said sales from stores open at least a year were up 1.3% in the first six weeks to Sept. 5 from a year earlier, helped in part by margin improvement of 70 basis points.

That compares with a 0.5% rise in the second-quarter ended July 25, and a 6.2% fall in the first-quarter. Overall, first-half comparable sales were down 2.7% as consumers cut spending on concerns about the economy, falling house prices and job security.

Gross profit for the six week period to Sept. 5 was also up, but the group didn't disclose by how much.

First-half retail earnings before interest, tax, depreciation and amortization was up 16% to GBP10.7 million from GBP9.2 million a year earlier, underpinned by cost cutting and operational improvements. The group didn't release a net profit figure.

House of Fraser, which operates 62 stores around the U.K. and Ireland, is in talks with "potential partners" about taking the business overseas, Chief Executive John King told reporters at a briefing to mark its upcoming three year anniversary as a privately-held company.

King declined to identify what markets it's targeting, saying only that the retailer will announce something within a few months.

Still, House of Fraser will start delivering goods purchased on its Web site to 65 countries from November. In the first-half of fiscal 2010, online sales were up 60% from a year earlier.

At the media briefing, House of Fraser executives rejected speculation that it was planning a return to the London stock market, noting it is focused on expanding and introducing new own-store brands which are more profitable than third-party brands, and paying down debt.

House of Fraser's own-brands include Linea, Howick, Criminal, Therapy, Pied A Terre and Casa Couture. It also sells top fashion brands such as Ralph Lauren, Karen Millen, Anya Hindmarch, Diesel and G-Star Raw.

There are also no plans to start paying a dividend to shareholders, as the group is focused on paying down its debt, Finance Director Mark Gifford and Chairman Don McCarthy said. The retailer's net debt fell GBP21 million to GBP293.3 million in the first-half ended July 25.

For fiscal 2010, House of Fraser expects to report retail Ebitda of around GBP65 million to GBP70 million, underpinned by around GBP25 million of cost savings.

Today's House of Fraser "looks a better quality business than the old HOF", said Pali International analyst Nick Bubb, who attended an analyst briefing hosted by the retailer Wednesday.

House of Fraser was sold to Baugur for GBP351 million, or 148 pence a share, in November 2006. At present, the retailer counts Landsbanki as its biggest shareholder with a 35% stake. Glitnir and McCarthy each own 13.9% and 22%, respectively.

Company Web site: www.houseoffraser.co.uk

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