Debenhams again sought to reassure investors that it is not close to breaching banking covenants yesterday as it reported market share gains from key high street rivals.

The department store chain said that like-for-like sales in its full financial year to August 30 declined by 0.9% compared the year before, in line with market expectations. Gross sales increased by 1.3% while the company succeeded in holding gross margins flat.

The market reacted with relief to the news, with the stock gaining 5% at one point before eventually closing down 2%, or 0.75p, at 42p, well ahead of the wider market.

Chief executive Rob Templeman said it was picking up market share from Next and Marks & Spencer. But he added: "We're taking the position that certainly the next six to 12 months are going to be tough."

Panmure Gordon analyst Philip Dorgan said: "Debenhams has not done a bad job in very difficult circumstances."

Of particular interest was the company's debt levels.

Last week Debenhams was forced to issue a statement saying it had not breached banking covenants. Yesterday it said its net debt position at the year end was expected to be in line with market expectations which put it at £1bn debt, falling by £100m next year.

Templeman said: "If people look at the numbers and look at the facts, Debenhams is a highly cash generative business. The one thing that Debenhams has always done is surprise people on the positive side about its debt position."

But Seymour Pierce analyst Freddie George wrote in a note: "We are concerned that in a more difficult trading environment in 2008-09, the company will come close to breaching its covenants."