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Debenhams says don't count on consumer recovery in 2014

People walk past Debenhams department store on Oxford Street, in central London, January 10th 2011. REUTERS/Ki Price

By James Davey

LONDON (Reuters) - Debenhams (LSE:DEB), Britain's second-largest department store retailer by sales, is not counting on the pace of any consumer recovery picking up significantly in 2014, it cautioned on Thursday as it reported a 2.7 percent fall in full-year profit.

"There is a clear disconnect between some of the more positive economic data and how customers are actually feeling in reality," chief executive Michael Sharp said, adding a consumer recovery was "probably further away than people might have previously liked to expect."

His outlook, along with fears that Britain's unseasonably warm autumn has been unhelpful to Debenhams' sales, sent shares in the firm down 7.9 percent.

Though data and surveys have indicated the outlook is improving for UK consumer spending, retailers are generally still cautious as inflation continues to outpace wage rises - Tesco (TSCO.L) and Sainsbury's (SBRY.L) have recently highlighted that consumers' disposable income is still falling [ID:nL6N0HS0WW][ID:nL6N0HY2AU].

Sharp said he regularly met shoppers: "They talk about the pressure of energy costs, food inflation, the cost of car parking and they are all very clear that all those component parts are running ahead of wage inflation."

The 200-year-old group, which trades out of 236 stores across 28 countries, made a pretax profit of 154 million pounds ($248.98 million) in the year to August 31 - in line with analyst expectations but down from 158.3 million pounds made in the 2011-12 year.

Analyst forecasts had been cut after a profit warning in March that was blamed on January snow. The firm then endured unhelpful spring weather before getting a boost to sales from a summer heatwave.

Now a mild autumn looks set to cause more problems.

"The hot weather has sent Debenhams' autumn/winter range into a tailspin. It's nearing the end of October and I have just seen a promotion offering 25 percent off a coat," said James McGregor, director of retail consultants, Retail Remedy.


Full-year sales, announced last month, rose 2.5 percent to 2.78 billion pounds, with sales at stores open over a year up 2.0 percent and gross margin flat.

Debenhams, behind employee-owned John Lewis (JLP.UL) by annual sales, is modernising stores - including a 25 million pounds refurbishment of its flagship on London's Oxford Street that it hopes will attract new brands and partners - as well as investing in new product and online and expanding its brand internationally as it seeks to counter subdued consumer confidence with market share gains.

The firm's share in clothing, footwear and accessories rose by 30 basis points in the 12 weeks to August 4, according to data from Kantar Worldpanel.

Though Sharp expects the market to remain highly competitive in the run-up to Christmas he indicated that Debenhams was not being hurt by the efforts of Marks & Spencer (MKS.L), Britain's biggest clothing retailer, to revive its womenswear business.

"We continue to grow market share in womenswear and I think that's all the evidence you need to demonstrate that we're clearly getting lots of things right for our customer," he said.

"We will do whatever we need to do in the run-up to Christmas and we'll trade our business in line with market conditions."

Shares in Debenhams, up 29 percent over the last six months, were down 7.7 pence at 102.7 pence at 0900 GMT, valuing the business at 1.26 billion pounds.

The firm is paying a full-year dividend of 3.4 pence, up from 3.3 pence last year.

(Editing by Sophie Walker)