 British department stores group Debenhams said first-half sales fell more than expected and it sees the retail environment remaining tough, but its shares rose on relief profit for the period would meet forecast. The retailer, which runs around 145 stores across the UK and Ireland, said like-for-like sales fell 0.7 percent in the six months to March 1, compared with a sales drop of around 0.5 percent forecast by four analysts polled by Reuters. Debenhams, which also has around 40 international franchises in 16 countries outside Britain and Ireland, had said in January that like-for-like sales were flat in the first 18 weeks of its financial year, reflecting poor market conditions. Underlying sales over the key Christmas period -- the four weeks to Jan. 5 -- rose by 2.2 percent. "Following a good performance over Christmas and the January sale, market conditions were tough through the remainder of January and February," Chief Executive Rob Templeman said in the trading update on Tuesday. "The macro economic climate leads us to expect the retail environment to remain challenging," he said, adding first-half profit would be in line with market forecasts. Britain's department store owners have struggled as indebted shoppers cut back on spending amid higher energy and food bills and a cooling housing market. Retail bellwether Marks & Spencer Group Plc reported its worst quarterly performance in two years in January, when it warned that the pain for retailers could extend into 2009. Shares in Debenhams, which returned to the stock market in May 2006 at 195 pence and have since slumped amid poor trading conditions, were up 8 percent at 57.5 pence at 0820 GMT, valuing the retailer at around 541 million pounds ($1.1 billion). "Current trading though weak could have been a lot worse, and the market will be relieved that H1 profit is expected to be in line with consensus," Panmure Gordon analyst Philip Dorgan said in a note. "We believe the stock is oversold, and that the investment in the store base will pay off as the market picks up," he said, retaining a 'Buy' rating on the stock and 80p price target. 
H1 PROFIT SEEN IN LINE Debenhams' Finance Director Chris Woodhouse told reporters the market consensus for first-half pretax profit was around 90 million pounds and 118 million for the full-year. Debenhams had reported headline profit before tax and items last year of 131.4 million pounds. Templeman said in January that gross margin -- a measure of profitability -- would be flat or slightly up for the year, and said he saw no reason to change that guidance on Tuesday. Templeman told reporters that as along the market does not become more challenging or competitive, "we are looking to hit those sort of numbers" for the year. However, Templeman said that in the current tough market Debenhams would only refurbish around three stores in the second half of its financial year, down from nine originally anticipated and compared with 18 refits in the first six months. "I'm pleased with the performance of the refits ... but in this present market where trade is challenging I don't want to take the disruption on those refits," he told reporters. Debenhams has benefited from bid speculation with Milestone Resources, an investment group linked to Dubai-based retailer Landmark and headed by Micky Jagtiani -- holding a 9.13 percent stake, while Icelandic investment group Baugur had 13 percent. "Nothing's changed since we spoke last time," Templeton told reporters. In January, he had said Landmark was just an investor as far as the board was concerned.