Debenhams reported a strong end to 2012 including record levels of sales in December, but said heavy discounting had hit margins.
In the 18 weeks to 5th January, total sales values increased by 3.5%, while like-for-like sales grew by 2.9%.
Over the five weeks to 5th January like-for-like sales increased by 5% compared to the year before and by 8.5% on 2010.
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However, the firm said margins took a battering as customers looking for bargains ahead of Christmas as well as in the traditional sale period.
"We now expect gross margin for the year to be 10 basis points higher than last year rather than 20 basis points as previously guided," Debenhams said.
"Stock levels remain firmly under control and terminal stock at the end of the first half will be in line with the long-term average of 2.5-3.0%," the statement added.
The company said consumers have become acclimatised to the new economic reality and it did not anticipate a significant change in consumer confidence in the remainder of the year.
Online sales over the 18 week period were ahead of expectations, increasing by 39% and accounting for 12.6% of total sales compared with 9.3% in the previous financial year.
Debenhams said the higher growth in online sales would have an impact on warehousing and distribution costs over the course of the year.
It now expects these costs as a percentage of sales to be more towards 3.5% than previous guidance of 3.2%.
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