Relieved investors bid Debenhams (DEB) up another 0.45p to 90.75p as its third quarter update confirms the department store is on course to hit annual profit targets. Yet trading over the 15 weeks to 13 June was decidedly lacklustre and prompts downbeat comment from some analysts.

Click here to read the Q3 update in full. One of the key metrics under scrutiny is Debenhams' flat like-for-like sales performance, curtailing cumulative same-store growth for the first 41 weeks of the financial year to just 0.9%. CEO Michael Sharp concedes Debenhams' customers 'remain cautious in their spending' and explains like-for-likes were negatively impacted by the shifting of the retailer's New Season Spectacular promotion from Q3 into the first half.

Web chart - DEB - June 15

Though the quarter saw a weak womenswear performance, there were bright spots including menswear and beauty categories as well as online, where sales grew rapidly with a boost from lower delivery charges. The British heritage brand continues to wean itself off margin-crimping promotions and is attempting to optimise store space too.

Already boasting Sports Direct International (SPD) concessions in its stores, new concession trials are underway with the likes of Patisserie-owned (CAKE:AIM) Patisserie Valierie and Chi Kitchen. And though the quarter saw a weak womenswear performance, bright spots included the menswear and beauty categories, as well as online, where sales grew rapidly with a boost from lower delivery charges.

Firmly in the bear camp is Investec Securities, which reiterates its 'sell' rating and writes: 'A flat Q3 like-for-like performance is inconclusive, with womenswear weak. While weather has not helped, we believe any gross margin benefit from lower markdowns/promotions will need to be reinvested into the offer – unlike consensus, we expect little profit progression over the medium term.'

Cantor Fitzgerald sticks with its 'hold' rating but places its target price under review. Retail scribe Freddie George says 'we remain concerned, that the department stores are capital intensive and need to be furbished to a higher standard to attract shoppers. We also believe there is a growing cost to the business from the company growing its on-line operations. We thus believe there is limited scope for the company to accelerate dividend growth. In addition, the company has significant leasing liabilities and a pension deficit.'

Paul Thomas of retail consultancy Retail Remedy comments: 'Debenhams' sales, much like its image, are stuck in limbo. Given the tired feel of many of its older stores, some will view its dead flat sales numbers as a modest success.'

Thomas continues: 'But you can't help feeling that in many instances the once venerable brand is living on borrowed time. Faced with a resurgent Marks & Spencer (MKS) and a strong House of Fraser that are consistently luring away its core customers, Debenhams has become heavily reliant on promotions. This is both unsustainable and eats into profits. There are questions too about the weak margins it makes on its online sales – which are growing well and becoming an ever more important part of the business.'

Issue Date: 25 Jun 2015