Department store group Debenhams expects profits to rise strongly this year after a product mix shift lifted margins.

The retailer reported the profits will rise about 20% year on year, or 35% compared to two years ago, to approximately £150m before exceptionals.

Debenhams posted a 1.4% increase in gross transaction value for the year to August 28, or 9.6% including Danish department store business Magasin du Nord, which was bought last November.

Like-for-likes were flat over the year, affected by the conversion of trading space from concessions to own-bought product, which generate better margin. Over the year the retailer introduced brands such as Principles by Ben de Lisi and H! by Henry Holland.

The retailer said it had made market share gains in menswear and childrenswear. Womenswear market share was hit by lower own-bought sales densities.

Debenhams chief executive Rob Templeman said: “We have said throughout 2010 that this would be a year of change for Debenhams and a year when the structural shift towards own-bought merchandise means that we will judge our performance on profit movement rather than sales.”

He warned that the trading outlook remains uncertain but was confident Debenhams would continue to make progress.