Department store group Debenhams said it expects pretax profit for its first half to be ahead of last year and in line with management expectations but it remains cautious on the outlook.

Sales grew 3.2% in the 26 weeks to February 26, while like-for-like sales were flat including VAT, and down 1.5% excluding VAT.

Sales from Debenhams Direct surged 82.4% excluding VAT in the period.

The retailer said it was able to offset cost inflation by its “ongoing focus on the drivers of cash margin”. Debenhams said it was able to grow gross margin in the period in line with management expectations by keeping its stock densities “under control”. It expects terminal stocks at the end of the half to be “at an all-time low”.

Debenhams completed five store refits in the first half which it said are performing in line or ahead of expectations.  The retailer is planning another 4-6 refits for the second half.

One new Debenhams department store opened in the period, in Bath, and another in Wakefield is planned for the second half.  A new Desire store in Fareham will open during the second half. 

It said it is in “advanced discussions” on a number of additional store openings. Debenhams said the construction of the new distribution centre is “progressing well” and it will be fully operational by the end of this calendar year. 

Debenhams net debt at the end of the first half is expected to be in the region of £350m, a reduction of £160m.

Debenhams chief executive Rob Templeman said: “Our performance in the first half has been pleasing given the difficult trading environment.  Our strategy of increasing own bought sales, as well as focusing on profit and cash generation, has again delivered margin gains despite the significant headwinds being experienced in the clothing sector supply chain.

“Looking forward, it is clear that disposable income is under pressure from inflation, public sector spending cuts and higher taxation. 

“As a result, trading across the UK high street is likely to be difficult in the second half of the year.  We will continue to pursue the self-help measures we have been working on over the past two years - driving market share and cash margin through own bought product ranges, increasing multi-channel access points, improving the instore environment through refits - which will be beneficial to the business whatever the trading environment.”