* H1 pretax profit 120.3 mln stg, down 5 pct
* FY gross margin guidance maintained at flat
* H1 dividend kept at 1 pence
* CEO says promotions a strength, not a weakness
* Shares up as much as 7.7 pct
(Adds detail, CEO, analyst comments, shares)
By James Davey
LONDON, April 18 Britain's Debenhams
defended its strategy of promotional discounts, criticised by
analysts as being too aggressive, after it posted an expected
5-percent fall in first-half profit.
Britain's second largest department store group, whose
shares have fallen 15 percent following a profit warning in
March, blamed snow in January for a drop in sales that it failed
to recover fully in February despite additional promotions and
But the absence of another profit warning accompanying
Thursday's results in a tough market for UK retailers came as a
relief for investors, sending the stock as much as 10 percent
Some analysts believe Debenhams, a mid-market department
store group which trails John Lewis by annual sales,
risks damaging its brand with aggressive price discounts - a
view Chief Executive Michael Sharp disputes.
"I don't think it does any brand damage at all," he told
"It also doesn't do any damage to our ability to trade or
the financial performance of Debenhams. It's undoubtedly a
strength," he said, adding the firm had relied on promotions for
over 30 years to draw in shoppers.
"In a market where customers are seeking value for money,
where we know there's pressure on consumer spending, then it is
absolutely right that we emphasize our strengths," he said.
Debenhams made a pretax profit of 120.3 million pounds
($183.27 million) in the 26 weeks to March 2, in line with
guidance issued in the profit warning on March 4 but down from
127.1 million pounds it made in 2011-12.
First-half sales rose 3.5 percent to 1.54 billion pounds.
Though sales at stores open more than a year increased 3.1
percent, gross margin fell 20 basis points, reflecting a rise in
However, Debenhams maintained its guidance for a flat gross
margin for the full 2012-13 year.
Sharp declined to comment on current trading, beyond stating
that the latest industry market share data, published last week,
showed the firm making progress in menswear, womenswear and
health and beauty.
"That's got to be a manifestation that customers are liking
our products and however difficult the market is out there,
we're taking more share than our competitors," he said.
TOUGH TIMES FOR RETAIL
Cantor Fitzgerald analyst Kate Calvert was concerned about
trading since the beginning of March, however, and cut her
2012-13 pretax profit forecast by 3 percent to 152 million
pounds and her 2013-14 forecast by 4 percent to 158 million
"Anecdotal feedback is that the industry is having a tough
time, given the late start to spring. Consequently, we believe
management is trading the business too aggressively," she said.
Many British retailers are finding the going tough as
consumers, whose spending generates about two thirds of UK gross
domestic product, fret over job security and a squeeze on
Last month was also the coldest March since 1962, denting
sales of spring/summer clothing and footwear.
Marks & Spencer, Britain's biggest clothing
retailer, last week reported a 3.8 percent decline in
fourth-quarter underlying sales of general merchandise.
Official UK data published on Thursday showed retail sales
volumes slipped 0.7 percent in March.
Debenhams, which maintained its interim dividend at 1.0
pence a share, also said it was pulling out of Romania, blaming
difficult market conditions and taking a 3.8 million pounds
Shares in the firm were up 8.8 percent at 87.7 pence at 1043
GMT, valuing the business at 1.1 billion pounds.
($1 = 0.6564 British pounds)
(Reporting by James Davey; Editing by Kate Holton, Paul Sandle
and Clelia Oziel)