Debenhams has delivered a robust full-year trading update and said profits are likely to come in ahead of last year’s.

The department store group reported that like-for-likes fell 3.6% over the year to August 29, impacted by the upheaval caused by the reallocation of space to own-label.

Debenhams chief executive Rob Templeman said that underlying like-for-like sales were down just 2% over the last quarter, after stripping out the disruption caused by the 530,000 sq ft reallocation of space, which will be completed next week.

The decline has been offset by a 180 basis points rise in margins over the last quarter – a 70 basis points increase over the year – and added to the positive outlook on profits.

Templeman added that he was “cautiously optimistic” about Christmas and the new year. He said: “I can see some positives, but it is very difficult to predict what the consumer will do.”

The retailer, which conducted a £323m capital raising in June, has repurchased £61.4m of debt at a 5.6% discount over the year.

Investec analyst Katharine Wynne said concern about Debenhams’ debt levels has now been “neutralised”. Her full-year forecasts of profit before tax of £122m are “likely to edge up slightly” following the update.

KBC Peel Hunt analyst John Stevenson said: “Of all the apparel retailers, Debenhams appears to have delivered the greatest change for autumn/winter.”