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Debenhams' sales growth slows in volatile UK market

By James Davey

LONDON (Reuters) - Debenhams , Britain's No. 2 department store group, said on Thursday a volatile trading climate and unhelpful spring weather contributed to a slowdown in third quarter sales growth, which fell-short of analysts' forecasts.

The company, like many other British retailers, is finding the going tough as consumers, whose spending generates about two thirds of Britain's gross domestic product, fret over job security and a squeeze on incomes.

Debenhams' sales at stores open over a year were flat in the 16 weeks to June 22 - a period which includes its fiscal third quarter. That compares with a first-half like-for-like sales rise of 3.1 percent and analyst forecasts for growth of about 2 percent.

"Any retailer that you speak to will tell you that it's not easy out there ... I think in the context of the market backdrop these are robust results," CEO Michael Sharp told reporters.

The 200-year-old department store group, which trails rival John Lewis by annual sales, said it had coped well with the conditions and was comfortable with market expectations for pretax profit in 2013-14, thanks to control over gross margins and more cost savings.

Shares in the firm, down 23 percent since the start of the year, were up 1.75 pence at 92.6 pence at 0912 GMT, valuing the business at 1.13 billion pounds ($1.73 billion).

"This is not a high quality update, but we think that the market had been expecting another warning," said Sanjay Vidyarthi, analyst at Espirito Santo Investment Bank.

Forecasts had been cut after a profit warning in March that was blamed on January snow.

Analysts' consensus forecast is a pretax profit of around 153 million pounds, down from 158.3 million pounds in 2012-13.

Debenhams published a graph to illustrate the volatile trading conditions in Britain, which showed like-for-like sales swinging wildly from one week to another. They were down more than 20 percent in the second week of March, the coldest March since 1962, but up over 15 percent in the last week of April.

Sharp highlighted market share gains in clothing, beauty and home and a 40 percent rise in online sales, saying that was a clear manifestation of the strength of the group's offer.

Across Europe fashion retailers have suffered so far this year as the economic downturn has been exacerbated by unusually cold weather in spring and early summer.

Earlier this month, global fashion retail leader Spain's Inditex , which owns the Zara chain, posted its weakest quarterly growth in net profit in four years, while No. 2 Sweden's H&M missed forecasts for second quarter net sales.

But there are still strong performers in Britain despite the tough trading conditions. John Lewis's total sales were up 7.9 percent in the 20 weeks to June 15, while online fashion retailer ASOS recently reported a 45 percent jump in third quarter sales.

Debenhams is spending 25 million pounds on a refurbishment of its flagship Oxford Street store in central London. The company said this was on track for completion in December, and would create 430 new jobs.

In line with previous guidance, Debenhams also said gross margin would be flat for the full 2013-14 year, while cost savings had been eked out from, for example, the UK online business. ($1 = 0.6520 British pounds)

(Reporting by James Davey; editing by Neil Maidment and Jane Merriman)

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