Debenhams has forecast a rise in annual profit despite store revamps impacting on the retailer’s sales.

The department store said that like-for-like sales fell 3.8% in its second half to August 29, compared with a decline of 3.6% for the full year.

Debenhams will complete the conversion of 530,000 sq ft of trading space from concessions to own-label by the end of the month.

It said that due to cost controls and better stock management it was on course to meet profit expectations for the year, even in the face of “difficult and volatile trading conditions”.

Gross transaction value for the year was 0.2% higher than the previous year.

At the year end, Debenhams, which has 144 department stores in the UK, said that £61.4m of debt had been repurchased at an average discount of 5.6%.

The retailer said the shortfall in like-for-like sales has been “more than offset” by strong gross margin performance which improved “significantly” as the year progressed.

The retailer confirmed today that it has signed designer Henry Holland, the latest to collaborate for its Designers at Debenhams offer.

The young fashion range targets 17-25 year-olds and will be sold in 60 stores and online in spring next year. It will feature Holland’s famous bold prints and bright colours and the range is priced from £5 to £60 and will occupy 800 sq ft of space in womenswear.

Debenhams chief executive Rob Templeman said: “We believe that the increase in profits in a year which has seen some of the most difficult and volatile trading conditions in recent times is a creditable performance.”

He added: “Although it is early days, we are encouraged by the launch of our new brands which we expect to benefit gross margin during the course of the year. We will continue to focus on the drivers of cash profit during the year.”