Debenhams sacrifices some profit to lure wary shoppers
Debenhams sacrifices some profit to lure wary shoppers
An industry survey said underlying British retail sales rose just 0.3 percent year-on-year in December. That is well below the rate of inflation, suggesting stores sold less in real terms, and increases the chances that the economy contracted in the last three months of 2012.
Debenhams, Britain’s second-biggest department store chain after John Lewis, said it achieved record sales over the holiday season, driven by strong growth in online trading.
But the group said it had to step up promotions to win shoppers grappling with rising fuel prices, muted wages growth and uncertain job prospects. As a result, its gross profit margin for the 2012-13 fiscal year was likely to rise 10 basis points, rather than the previously assumed 20 basis points.
“Strong sales, but at a cost,” Espirito Santo analysts said of the performance, adding the lower guidance on margins could reduce full-year profit forecasts.
Debenhams shares, which have doubled over the past year, were down 6.3 percent at 109.7 pence by 1145 GMT.
“Christmas shopping came very late, not only did customers have less money to spend, they’ve now become acclimatized to the new economic reality. They were extremely canny about how they spent their money,” Chief Executive Michael Sharp said, describing the trading environment as the most competitive he had seen in his 37-year retail career.
Debenhams’ figures came a week after John Lewis posted bumper Christmas takings and clothing retailer Next raised profit guidance after a solid holiday season.
Sharp said Debenhams’ performance, when compared with the survey from the British Retail Consortium, showed the firm was “definitely winning and somebody else is losing big time.”
Britain’s biggest clothing retailer Marks & Spencer is forecast to report a decline in general merchandise sales when it posts quarter figures on Thursday.
Debenhams’ sales at stores open over a year rose 5.0 percent in the five weeks to Jan. 5, with like-for-like sales in the 18 weeks to Jan. 5 — a big chunk of the firm’s fiscal first half — up 2.9 percent.
That compared with analysts’ average forecast for the first half to end-February of an increase of 2 percent.
As was the case with John Lewis, growth was boosted by strong demand online, with sales over the 18 weeks up 39 percent, ahead of the firm’s expectations.
Online sales now account for 12.6 percent of Debenhams’ total sales, up from 9.3 percent this time last year.
“Mobile was a huge story this Christmas, 36 percent of the traffic to the website came via mobile devices,” Sharp said.
He dismissed comments from Next, which had said there were fewer promotions in the shops compared with Christmas 2011.
“I think they (Next) need to get out a bit more,” he said.
“It’s quite plain that the market was more promotional than last year. All our major competitors were doing non-like-for-like promotional activity.”
Debenhams said it was on promotion for two more days in the 18-week period than in the previous year, including one-day specials offering discounts of up to 50 percent.
“Debenhams is suffering from the extremely promotional backdrop we saw pre-Christmas and are continuing to see,” said Panmure Gordon analyst Jean Roche.
Sharp was confident Debenhams’ like-for-like sales momentum would continue through the balance of the fiscal year, helped by its breadth of products, appeal to a wide range of customers and well-received marketing campaigns.
Jordanian cabinet approves new IMF-guided tax law to boost finances
AMMAN: Jordan’s cabinet on Monday approved major IMF-guided proposals that aim to double the income tax base, as a key part of reforms to boost the finances of a debt-burdened economy hit by regional conflict.
“When only 4 percent of Jordanians pay (personal) income tax, this may not be the right thing,” Finance Minister Omar Malhas said in remarks after the cabinet meeting, adding the goal was to push that to eight percent. The draft legislation was submitted to parliament.
The IMF’s three-year Extended Fund Facility program aims to generate more state revenue to gradually bring down public debt to 77 percent of GDP in 2021, from a record 95 percent.
A few months ago Jordan raised levies on hundreds of food and consumer items by unifying general sales tax (GST) to 16 percent — removing exemptions on many basic goods.
In January subsidies on bread were ended, doubling some prices in a country with rising unemployment and poverty among its eight million people.
The income tax move and the GST reforms will bring an estimated 840 million dinars ($1.2 billion) in extra annual tax revenue that will help reduce chronic budget shortfalls normally covered by foreign aid, officials say.
Corporate income tax on banks, financial institutions and insurance companies will be pushed to 40 percent from 30 percent. Taxes on Jordan’s phosphate and potash mining industry will be raised to 30 percent from 24.
The government argues the reforms will reduce social disparities by progressively taxing high earners while leaving low-paid public sector employees largely untouched.
“This is a fair tax law not an unfair one,” said Malhas, who shrugged off criticism the law is lenient on many businesses connected to politicians whose transactions are not subject to tax scrutiny.
Husam Abu Ali, the head of the Income and Sales Tax Department, said a proposed IMF-recommended Financial Crime Investigations Unit will stiffen penalties for tax evaders. Critics say it will not tackle pervasive corruption in state institutions.
Abu Ali said the government could be losing hundreds of millions of dollars through tax evasion, which is as high as 80 percent in some companies.
The amendments lower the income tax threshold and raise tax rates. Unions said the government was caving in to IMF demands and squeezing more from the same taxpayers.
“It is penalizing a group that has long paid what it owes the state,” the unions syndicate said in a statement.
“It imposes injustice on employees whose salaries have barely coped with price hikes rising madly in recent years.”