UK's Debenhams returns to growth, lifting profits and shares

June 3 (Reuters) - UK online fashion retailer Debenhams Group returned to growth with a 0.5% rise in first-quarter gross merchandise value along with a "substantial" increase in core profit, it said on Wednesday, lifting the shares over 10%.

The improvement, with GMV up about 8% in May, was led by the Debenhams and PrettyLittleThing brands but also seen across its Karen Millen and Boohoo brands.

The retailer has been cutting costs and shifting to a marketplace model as part of its turnaround plan to address supply-chain challenges, weak demand and increased competition from low-cost fast fashion.

"That work is now translating into materially improved profitability," CEO Dan Finley said, pointing to a "substantial" increase in adjusted core profit and significantly improved cashflows in the quarter.

At 0742 GMT the company's shares were up 10.4% at 20.75 pence having fallen over 7% in the last 12 months.

The retailer said its debt reduction target remains on track through planned disposals of assets including its Burnley property and a U.S. warehouse, alongside improved trading cashflow this year.

It also reaffirmed its expectations for double-digit percentage growth in annual adjusted core profit and free cash flow for fiscal 2027.

"The trajectory has been evident for some time now but it’s a major inflection point," said Panmure Liberum analyst Wayne Brown, noting the shares are not reflecting the turnaround.  

(Reporting by Raechel Thankam Job in Bengaluru; Editing by Sonia Cheema, Nivedita Bhattacharjee and Elaine Hardcastle)