Debenhams sees profitability gains despite subdued UK spending

* FY pretax profit down 21 pct, in line with forecasts

* Sees gross margin up 10-40 bps in 2015

* CEO says comfortable with 2015 consensus forecasts

* Shares (Berlin: DI6.BE - news) rise 4.9 pct (Adds CEO, analyst comments, share price)

By Sarah Young

LONDON, Oct 23 (Reuters) - Debenhams (Other OTC: DBHSF - news) , Britain's No.2 department store chain, said a drive to use its store space better and rein in promotions should help it improve profitability this financial year, despite little sign of a pick up in consumer spending.

The company, posting an expected 21-percent drop in annual underlying profit, said it expected to lift its gross profit margin by 10-40 basis points in the year to Aug. 30, 2015.

Debenhams, which trails market leader John Lewis by annual sales, has had a tough time recently, with unseasonably warm weather leading to a 25 percent drop in profit in the first half of its last financial year.

The firm said on Thursday it had a better second half, having reduced promotions and improved delivery options for its online business.

It also said it was seeing "encouraging" signs from trialling concessions from companies including Sports Direct and Whitbread (LSE: WTB.L - news) 's Costa Coffee in an attempt to use its store space more effectively.

Debenhams had said about 10 percent of space in its around 160 UK stores were "underperforming".

Its shares, which had slumped 44 percent over the last 12 months against a 2 percent fall in Britain's midcap index , were up 4.9 percent to 65.85 pence by 1005 GMT.

"In our view we could see some relief this morning given the gross margin outlook and low multiple at which Debenhams trades versus the sector," JP Morgan analysts said in a note.

Debenhams said underlying pretax profit fell 21 percent to 110.3 million pounds ($177 million) in the year ended Aug. 30, in line with analysts' expectations,

Chief executive Michael Sharp told reporters he was comfortable with forecasts for profit to grow by about 4.5 percent over the current financial year, but said squeezed consumers made for a challenging market.

"Customers tell us that although they are encouraged by economic improvements this has yet to translate into higher disposable income and the market remains tough. We therefore remain cautious about the outlook," he said.

Data on Thursday showed British retail sales fell more than expected in September, as warm weather hit demand for winter clothing ranges.

British retailer Next (Other OTC: NXGPF - news) warned at the end of September it would have to lower profit forecasts if unusually warm autumn weather continued.

Sharp declined to comment on current trading, saying that the company would provide an update in January.

"It's certainly not helpful when the weather's unseasonable and clearly that's something that tends to happen more often than not these days," he said.

However, Investec (LSE: INVP.L - news) analysts were relieved there had been no downgrade to profit forecasts for the new financial year.

"Management are reassuring that they are navigating the weather better than others," they said.

(1 US dollar = 0.6241 British pound) (Reporting by Sarah Young; Editing by Paul Sandle and Mark Potter)