By James Davey
LONDON (Reuters) - Fears over the possible impact of new British government spending cuts was dampening consumer confidence even though shoppers had more money to spend, the boss of department store chain Debenhams (L:DEB) said.
Britain's newly re-elected Conservative government is pressing ahead with plans to cut welfare spending by 12 billion pounds. Chancellor George Osborne is expected to give details of measures in his budget statement on July 8.
Debenhams CEO Michael Sharp said customers recognised the improved economic background, with increases in real wages driven by falls in the cost of energy and food, but still remained cautious.
"On the one hand they can see the positive economic indicators but on the other hand they also pick up the messages that say ‘things are going to remain tough for a while' and that influences their feeling about their own personal financial situation," he told reporters on Thursday.
"That manifests itself as proceed with caution," he said.
other retailers have said increases in disposable income seem to be going on holidays and eating out rather than being spent in high street stores.
Sharp was speaking after Debenhams said it was on track to deliver full year results in line with expectations despite seeing no underlying sales growth in its third quarter.
Britain's second largest department store chain behind John Lewis (JLP.UL) said sales at shops open over a year were flat over the 15 weeks to June 13, versus analysts' forecasts of down 2 percent to up 0.5 percent.
Debenhams maintained gross margin guidance for its 2014-15 year -- growth at the low end of a 10 basis points to 40 basis points range -- and said it was on track to achieve pretax profit expectations of 111 million pounds ($174 million)versus 110 million pounds in the previous year.
The firm is cutting back promotions, strengthening online ordering and delivery options, and adding concessions in under-used store space to secure higher returns, improve choice and increase shopper numbers.
Shares in Debenhams, up 30 percent over the last year, were up 1 percent at 91 pence, valuing the business at 1.1 billion pounds.
"While the weather has not helped, we believe any gross margin benefit from lower markdowns/promotions will need to be reinvested into the offer," said Investec analyst Kate Calvert who expects little profit progression over the medium term.
Debenhams has agreed concession trials with new partners including Patisserie Valerie, Chi Kitchen and BHS lighting, to add to deals already done with Sports Direct (L:SPD), Costa Coffee (L:WTB), Monsoon and Jack & Jones.
The group, which currently trades from over 240 stores across 27 countries, said it was on track to open five more stores in Britain this autumn.