Debenhams lines up more concessions as profits surprise

British department stores chain Debenhams said it would give more shop space to a raft of retailers including Costa Coffee and Sports Direct as part of a shake-up aimed at improving under-pressure profits.

The move builds on a year-old strategy to cut back promotions, strengthen online ordering and delivery options, and trial concessions in under-used store space to secure higher returns, improve choice and increase visitor numbers.

On Thursday Britain's No.2 department stores chain behind John Lewis said the plan was working as it posted a pretax profit of 88.9 million pounds ($132 million) for the 26 weeks to Feb. 28, its fiscal first half.

That was 4.3 percent ahead of the previous year and above a company-compiled forecast of 84.5 million pounds, as fewer promotions boosted full-price sales and an improved online offering, such as next day click and collect, increased trade.

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"I think these set of results prove that the strategies we established over a year ago are the right thing for Debenhams," Chief Executive Michael Sharp told reporters, adding the firm was on track to achieve full-year expectations.

Shares in Debenhams, which like rivals saw mild autumn weather hurt demand for winter clothing before trends later improved, rose 4.8 percent to 83.45 pence at 0828 GMT.

Sharp said that the first four concessions of Sports Direct, Britain's biggest sporting goods retailer, had been well received and would be extended to 16 by August 2016, taking up 20 percent of the 1 million square foot of under-used space identified by the firm.

Sports Direct, majority owned by businessman Mike Ashley, holds a 16.6 percent interest in Debenhams but in January ruled out a bid for the retailer which has 246 stores in 27 countries.

Costa Coffee and Monsoon concessions would double to 20 and 10 respectively, Sharp said, while menswear chain Jack & Jones would be in 15 stores by September.

While Debenhams had 14 days fewer on promotion overall in the first half, like-for-like sales growth of 1.3 percent and profits were boosted by one such event moving forward one week into the half year period. Stripping this out pretax profit was still slightly ahead of forecasts.

Gross margin was flat year-on-year as the benefit of reduced markdowns was offset by increased sales of lower-margin products such as cosmetics and less discounts during promotions.

"Although the beat today is relatively modest, we believe it will be enough to push shares higher given Debenhams has returned to profit growth and left the era of profit warnings behind," analysts at Barclays said.

£1 = $1.48