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Debenhams Surges as Much as 10% on Market Share, Online Gains

Debenhams Plc (DEB), the U.K.’s second- biggest department-store chain, gained market share in the first half as online sales rose 46 percent, easing investor concern after warning last month that profit would miss estimates.

Online sales rose three times faster than the market, the London-based retailer said in a statement today. The shares climbed as much as 10 percent even as first-half profit fell.

The retailer gained market share across its menswear, womenswear and beauty ranges after increasing promotions to clear excess stock, Chief Executive Officer Michael Sharp said on a call to journalists today. The market is “undoubtedly very competitive” as cold weather in the U.K. extended through March, he said.

“There is relief today,” Jean Roche, an analyst at Panmure Gordon in London, said by phone. “You’ve had a downgrade and a big profit warning so there’s no more nasty news,” said Roche, who has a hold recommendation on the stock.

The shares rose 7 percent to 86.15 pence at 9:58 a.m. in London for the third-biggest gain on the FTSE All-Share Index. That pared this year’s decline to 24 percent.

Profit before tax in the six months ended March 2 fell 5.4 percent to 120.3 million pounds ($183 million), compared with the 121.8 million-pound average estimate of eight analysts compiled by Bloomberg. The retailer will pay an unchanged interim dividend of one penny.

January Snow

Debenhams said last month that fiscal first-half profit would miss estimates after January snowfall hurt sales and caused the retailer to offer deeper discounts. The company is refurbishing 125 of its 240 stores, extending its online offer and opening franchise outlets internationally to offset stagnant U.K. retail sales.

“We made progress during the first half although snow in late January meant we did not achieve the profit outcome we had expected,” Sharp said in the statement. “We expect to make further progress in the second half despite consumer sentiment remaining weak and challenging market conditions.”

Roche said she expects gross margins to be 10 basis points lower this year due to continued promotions. The measure fell by 20 basis points, or 0.2 percentage points, in the first half. “There’s been worry about the amount of discounts, so keeping the full-year gross margin guidance flat is good news.”

CEO Sharp defended the discounting strategy. “We know customers like them,” he said. “I don’t think promotions does any damage at all.”

Sharp also said that refurbishment efforts add 6 percent same-store sales growth to refreshed outlets.

To contact the reporters on this story: Sarah Shannon in London at sshannon4@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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