First Half Trading Update

16 March 2010

DEBENHAMS plc - FIRST HALF TRADING UPDATE

·; Sales up

·; Gross margin up

·; Profit before tax up

·; Acquisition of Magasin du Nord completed

Debenhams plc, the leading department stores group, today releases a trading update for the first half of its financial year which comprises the 26 weeks ended 27 February 2010.  

We are pleased with our first half performance. We have continued to deliver on the strategy laid out 18 months ago to grow the business by focusing on measures to expand margins and gain market share whilst at the same time continuing to invest in future development. We have now delivered profit growth on a consistent basis for the past 18 months.

Gross transaction value (excluding Magasin du Nord) for the 26 weeks was 1.7% higher than the same period last year. Like-for-like sales increased by 0.3% over last year in the first half. In the eight weeks since the Christmas trading update, we have seen an improving trend in terms of like-for-like sales and gross margin.

A significant strand of our margin expansion strategy is to increase sales of own bought products whereby higher own bought margins more than offset lower own bought sales densities. In the fourth quarter of last year we undertook extensive in-store space moves to create space for both new and expanded own bought brands by reducing concession space. We estimate that there is a detrimental impact on like-for-like sales resulting from these moves of some 1.5% throughout the current financial year.

Gross margin for first half was significantly higher than last year as a result of our strategy to focus on the drivers of cash gross profit, principally the higher own bought mix and careful stock control.

As a result of higher sales and gross margin, EBITDA and profit before tax for the first half are both expected to be higher than last year and in line with market forecasts.

Stocks continue to be tightly controlled. Despite disruption to sales in early January due to the weather, terminal stocks ended the half at a new historical low of 2.64%.

Progress continues to be made in terms of market share. Menswear and childrenswear share both increased (source: Kantar Worldpanel Fashion 24 weeks market share data to 31 January 2010 vs. 2009) as did our home market share (source: GFK). In womenswear, as anticipated market share for this period was impacted by the strategic move from concessions to own bought. We were pleased with the underlying performance of own bought womenswear.

Product development and innovation, as well as capitalising on the differentiation that Designers at Debenhams gives us, are important drivers of growth. In February, the much-missed brand Principles returned to Debenhams' stores, now designed by Ben de Lisi. We are greatly encouraged with the initial response of customers and believe that Principles has the potential to become one of our biggest brands over the medium-term. As the half came to an end, the new Designers at Debenhams range H! by Henry Holland started to arrive in stores and early feedback is again very positive. Henry Holland himself will be officially launching the brand in our Oxford Street store tomorrow (Wednesday 17 March).

The space for Principles and H! was created at the time of our major space move at the end of the last financial year meaning that this space was not fully optimised prior to their launch. As a consequence, the second half of 2010 will benefit from enhanced productivity of the 150,000 square feet of trading space that these brands will now occupy.

The multi-channel business moved forward strongly in the first half with sales increasing over 80%. The existing website business is now complemented by in-store ordering, click-and-collect and international deliveries.

Investing for future growth has continued with the opening of four new stores in the first half including the 128,000 sq ft flagship department store in Eldon Square, Newcastle-upon-Tyne on 16 February, plus three new Desire by Debenhams stores in Kidderminster, Monks Cross and Witney. In addition, new international franchise stores opened in Iran and Vietnam. The store refurbishment programme has now recommenced with a number of projects starting in February, including major store refits in Glasgow and Manchester.

The purchase of Magasin du Nord, the leading Danish department store chain, was completed on 27 January 2010. We have been pleased with the performance of the business over the Christmas and New Year period. Work is now commencing to introduce selected Debenhams' brands into the six Magasin du Nord stores. We will update the market on the trading performance and our business plans for Magasin du Nord at the interim results presentation in April.

The business remains highly cash generative and net debt at the year-end is expected to be within the range of market forecasts.

Rob Templeman, Chief Executive of Debenhams, said:

"We are pleased with our first half performance which shows continued progress in delivering our strategy. In 2009 we were one of only a handful of retailers to increase sales, margins and profits and we have done so again in the first half of 2010. Against the backdrop of challenging trading conditions, we have delivered profit growth on a consistent basis for the past 18 months.

"In the second half we will continue to focus on our self-help measures. The impact of the disruption we saw in the fourth quarter of last year due to the closure of concessions and the significant space shift will start to dissipate and we expect to benefit from enhanced space productivity in the second half from our new brands. Our strong own bought offer, not least the successful and exclusive Designers at Debenhams brands which bring the catwalk to the high street, will remain our key driver of growth."

Debenhams' interim results for the 26 weeks ending 27 February 2010 will be announced on 13 April 2010.

A conference call for analysts and investors will be held today at 8:30am. To join this call, please dial +44 (0) 20 7906 8567. A recording will be available for seven days on +44 (0) 20 3364 5943 or +1 866 286 6997, PIN 261936#.

Enquiries

Analysts/Shareholders

Debenhams plc

Rob Templeman, Chief Executive

Chris Woodhouse, Finance Director

Lisa Williams, Investor Relations 020 7408 3304/07908 483841

Media

Financial Dynamics

Jonathon Brill 020 7269 7170

Billy Clegg 020 7269 7157

Caroline Stewart 020 7269 7227

Statements made in this announcement that look forward in time or that express management's beliefs, expectations or estimates regarding future occurrences and prospects are "forward-looking statements" within the meaning of the United States federal securities laws. These forward-looking statements reflect Debenhams' current expectations concerning future events and actual results may differ materially from current expectations or historical results. Any such forward-looking statements are subject to various risks and uncertainties, including: Debenhams' ability to predict customer preferences and demands accurately; the effectiveness of Debenhams' brand awareness and marketing programmes; the occurrence of weak sales during peak selling seasons or extreme or unseasonal weather conditions; difficult market conditions and fragile consumer confidence; competitive factors in the highly competitive retail industry; Debenhams' ability to successfully implement its new store rollout and department store refurbishment strategy; Debenhams' ability to maintain its relationships with certain designers and its significant concession partners; and currency fluctuations and currency risk. Additional risk factors that you may want to consider are: Debenhams' ability to retain key management and personnel; disruptions or other adverse events affecting Debenhams' relationship with its major suppliers or its store card provider; factors outside Debenhams' control, such as changes in the financial or equity markets, adverse economic conditions or a downturn in the retail industry, or damage or interruptions due to operational disruption, natural disaster, war or terrorist activity; and work stoppages; slowdowns or strikes.

Notes to Editors

Debenhams is a leading department stores group with a strong presence in key product categories including Womenswear, Menswear, Childrenswear, Home and Health and Beauty. Debenhams is the second largest department store chain in the UK.

Debenhams operates 158 stores in the UK and the Republic of Ireland, comprising 145 full departments stores and 13 Desire by Debenhams stores, which is a small store concept featuring an edited product range. In November 2009, Debenhams acquired six stores in Denmark through the acquisition of the leading Danish department store group Magasin du Nord. Debenhams also has 51 international franchise stores in 18 countries. Debenhams also has an online store at www.debenhams.com, through which much of the Debenhams range is available.

Designers at Debenhams include Ted Baker, Jasper Conran, Erickson Beamon, Pip Hackett, Henry Holland, Betty Jackson, Ben de Lisi, Julien Macdonald, Melissa Odabash, Jane Packer, Pearce Fionda, Janet Reger, John Rocha and Matthew Williamson.