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Debenhams says UK recovery to take time as sales pick up

By James Davey

LONDON (Reuters) - A fledgling economic recovery is likely to take time to feed into stronger consumer spending, British department store group Debenhams (LSE:DEB) said on Tuesday, as a hot summer and online growth helped to lift its quarterly sales.

Shares in the 200-year-old firm, which trades from 236 stores across 28 countries, rose as much as 4.4 percent on Tuesday after it also said it was winning market share and would meet profit forecasts for its 2012-13 financial year.

Debenhams is modernising stores, including a 25 million pounds ($40 million) refurbishment of its flagship on London's Oxford Street, investing in new product and online, and expanding its brand internationally as it seeks to counter subdued consumer confidence with market share gains.

"Looking forward, we are confident in our strategy but are not expecting any rapid recovery in consumer sentiment and the marketplace remains highly competitive," said Chief Executive Michael Sharp.

While official data and surveys have shown an improving outlook for UK consumer spending, which generates about two thirds of gross domestic product, retailers remain wary.

Many, including Next (NXT.L), Britain's No. 2 clothing retailer, say consumer spending is likely to remain subdued until wages rise ahead of inflation, which could be over a year away.

"We've all seen the positive indicators and that's maybe good for the future but the reality is it doesn't feel like things are getting better at the moment if you are a consumer," Sharp told Reuters.

Debenhams, which trails employee-owned John Lewis (JLP.UL) by annual sales, said sales at stores open over a year rose 1.9 percent in the 10 weeks to August 31, its fiscal fourth quarter, as it won share in categories including womenswear and beauty.

That was in line with analysts' forecasts, compared with a flat outcome in the 16 weeks to June 22, and took growth for the full financial year to 2 percent.

"The summer weather was undoubtedly helpful but we've grown market share which demonstrates that in a competitive market place the strategy is delivering," said Sharp, pointing to data from Kantar Worldpanel which showed Debenhams' share in clothing, footwear and accessories rising by 30 basis points in the 12 weeks to August 4.

Online sales were up 46.2 percent over the year, well ahead of market growth of 14.4 percent, while revenue through mobile phones soared 128 percent. Analysts said the online growth partly reflected a catch up with rivals that moved much earlier to expand online, such as Next.

Shares in Debenhams, down 7 percent over the last month, were up 1 penny to 104.2 pence at 1040 GMT, valuing the business at 1.3 billion pounds.

"Robust trading over the last quarter should go some way to reassuring investors that the Debenhams proposition continues to appeal to customers," said analysts at Oriel Securities.

Debenhams forecast a flat gross profit margin for the full year, in line with guidance.

Prior to the update analysts were on average forecasting a full-year pretax profit of about 153 million pounds, down from 158.3 million pounds in the 2011-12 year.

Forecasts had been cut after a profit warning in March that was blamed on January snow.

($1 = 0.6275 British pounds)

(Editing by Neil Maidment and Mark Potter)