Debenhams shares up 20 per cent

<p>This year, shares have gone up but analysts are still wary.</p>

So far this year, shares in Debenhams have gained more than 20 per cent. The UK's second-largest department store has indicated that sales show signs of stabilising and shopers are tentatively beginning to spend more.

However, analysts are still wary about long-term returns for the retailer, reports the Telegraph.

Like-for-sales for the company rose by 0.9 per cent in the 41 weeks to June. However, there was no improvement over the last 15 weeks compared to the same period last year.

The company's best performance was seen in its website and delivery operations. These helped sales increase 16.7 per cent over the 15-week period and 13.9 per cent in the 41 weeks to June.

Experts warn that Debenhams could be a risky investment, says the Telegraph, and a look at its previous performance can explain their concern.

The company returned to the stock market in 2006, with shares at 200p. However, shares are now worth less than half of that starting price – the closing price on Friday was 91p.

Over the past six years, the company has seen a number of false downs as it has tried to find a place on the high street. Last year, warm weather contributed to a 24.8 per cent fall in pre-tax profits.

One source of difficulty for the group is that it retains a debt burden from its days in private equity. Some progress is being made in this area – at the end of February, net debt was down £74 million compared to the same period last year, bringing it to £297 million. However, analysts expect the debt to rise to between £320 million and £340 million by the end of the year.

Austerity damaging the high street

Last week, Debenhams boss Michael Sharp warned that the government's plans for additional austerity measures were affecting consumer confidence, despite the apparent health of the economy.

"When I sit down and talk to customers, they recognise that energy is cheaper and it's cheaper to fill the car and their weekly budget for food is going further, which is great bearing in mind that not long ago there was five per cent inflation for food," he explained.

However, he added that people are aware of the government's plan to make £12 billion in welfare cuts. "They see the positive indicators but [...] they pick up on messages that say things are going to remain tough for a while, and that influences their feelings about their own financial situation," he said.

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