Debenhams, the department store group, revealed a 12.4 per cent drop in underlying pre-tax profit for the six months to March 1 and warned that conditions would remain challenging as consumers cut their spending in the wake of rising living costs and falling house prices.

The group, which has 145 shops in the UK and Ireland and 40 international franchises, reported £94 million pre-tax profit for the first half, down from £107.4 million last year. LIke-for-like sales fell 0.7 per cent and the gross margin on sales dropped by 20 basis points (bps).

Debenhams also gave figures for the eight months to April 12 — which adds in the first six weeks of the company's second half — showing that like-for-like sales were down by 1 per cent and margins had fallen by 10 bps.

Rob Templeman, the chief executive of Debenhams, said: "What that really implies is that over the last couple of weeks, sales have been down about 2.5 per cent and margins have been stronger."

Mr Templeman said that he expected the trading environment to remain "challenging" but that he was pleased with the group's sales performance relative to the sector.

Debenhams made market share gains in the core clothing categories despite a tough marketplace, he said.

The British Retail Consortium said yesterday that like-for-like till takings across the UK had fallen by 1.6 per cent in March compared to the previous year after shoppers, squeezed by rising food and fuel costs and falling house prices, reigned in their spending.

Debenhams plans to open 22 new stores over the coming three years, including new flagship shops in Liverpool and London's White City. It said today that the refurbishment programme in existing stores would be managed in line with the market conditions.

The company rejoined the stockmarket in May 2006 after two and a half years in private equity ownership and two of its three previous owners, CVC Capital Partners and TPG, retain a 23.7 per cent stake in the company. Baugur, the Icelandic group, owns 13.5 per cent. Since returning to public ownership, the company has issued a series of profits warnings. Its shares closed yesterday at 57p each, having lost almost three-quarters of their 195p float price. The shares rose 2.75p, or almost 5 per cent, to 59.75p, this morning.

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