Debenhams has slashed its dividend and promised a string of other cost cutting measures to reduce its £1 billion debt pile after reporting a 4.2 per cent fall in like-for-like sales in September and the first half of October.

The final payout to shareholders will be 0.5p, compared to 3.8p a year ago, capital investment will be cut by £39 million and cost reductions will trim a further £10 million - £15 million from the budget as Debenhams said it was important to take its "leverage off the agenda".

However, executives at the department store group attempted to remain optimistic about Christmas trading, with Rob Templeman, Debenmans' chief executive, warning despite "incredible volatility" that there was a danger that the country would talk itself into a recession.

In its annual results statement, Debenhams said that the "unprecendented turmoil in financial markets" had "attracted massive media interest" that "in turn had heightened concerns of customers about their own financial security".

Like for like sales in the six weeks to October 11 were down 4.2 per cent against what the company described as a strong comparable a year ago.

Borrowings eased marginally to £994 million in the year to August 30 from £1.01 billion.

The retailer's stock price has been hit hard by worries about its ability to service its debts in a faltering economy. Floated at 195p after a short period in private equity ownership under Merrill Lynch, Texas Pacific and CVC, the stock had fallen as low as 31.75p earlier this month.

Capital expenditure on new stores and reburbishments fell from £129.1 million last year to £90 million.

Pre-tax profit for the year to August 30 fell by 6.4 per cent to £105.9 million on sales up 3.7 per cent to £1.84 billion. Shares in Debenhams rose by 3 per cent to 33.5p in early trading.

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