Debenhams wary on outlook as profits fall

LONDON, England - Debenhams (DEB.L), Britain's second-largest department store retailer by sales, met forecasts with a 2.7 percent fall in full-year profit that reflected volatile weather conditions, and said it was wary about the outlook for consumer spending.

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.

In recent weeks store groups, including Tesco and Sainsbury's, have highlighted that consumers' disposable income is still falling.

But retail market research specialist Verdict last week forecast British retailers were set to enjoy their best growth in Christmas sales since the financial crisis.

Debenhams said on Thursday it expected household incomes to remain under pressure.

"We remain cautious about the strength and pace of any consumer recovery in 2014 and expect the marketplace to remain highly competitive," chief executive Michael Sharp said.

The 200-year-old group, which trades out of 236 stores across 28 countries, made a pre-tax profit of 154 million pounds in the year to August 31.

That was in line with analyst expectations but down from the 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.

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, which trails 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, investing in new product and online, and expanding its brand internationally as it seeks to counter subdued consumer confidence with market share gains.

Shares in Debenhams, up 29 percent over the last six months, closed Wednesday at 110.4 pence, valuing the business at 1.36 billion pounds.

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