London-listed department store chain Debenhams has indicated that its newly-acquired Roches Stores business will not add a single penny to its profits until the financial period beginning September next year.
As Debenhams reported a 68 per cent rise in annual pretax profits to £112.8 million (€89.81 million) in the year to September, the chain said conversion of nine Roches outlets would be completed by the end of its current financial year.
Debenhams said it expected the €29 million transaction with Roches to be "earning neutral" this year but would be "earnings positive" in the year starting September 2007 after a significant investment in store conversions.
The chain's purchase of nine Roches outlets in Dublin, Cork, Limerick, Galway, Waterford and Tralee gave it an additional 600,000 sq ft in floorspace. The upfront consideration was €15 million in August, with €5 million payable on the first anniversary of the deal and €9 million on the second anniversary.
As part of a transaction, which saw Debenhams pay more than €10 million on Roches' stock, members of the Roche retailing dynasty will receive annual rents of almost €18 million for use of the store sites in a long-term lease arrangement. Debenhams said yesterday that current trading throughout the group was "volatile" as mild weather hit sales of winter clothes. Chief executive Rob Templeman said he was "confident" in the outlook for the retailer as it goes into the important Christmas period.
Improving margins helped offset a 4.2 per cent fall in same-store sales since September as shoppers shunned winter coats in unseasonably warm weather.
"We're in good shape with products, in good shape with marketing, we've just got to keep fingers crossed we have a turn in the weather and the customer comes out. But whatever happens, we will get our fair share," Mr Templeman said.
Keith Bowman, an analyst at Hargreaves Lansdown Stockbrokers, said the results were "credible" and the longer-term outlook was positive. "Management's conviction that the store portfolio can be increased substantially provides underlying investor optimism. The current market consensus opinion is cautiously positive in tone," he said. Underlying trading profit before exceptionals came in at £267.4 million, in line with forecasts from Deutsche Bank and Merrill Lynch.
