House of Fraser said conditions were still tough on the High Street

Pre-tax profit rose 4.6% in the year to 28 January, but excluding new store openings, sales fell nearly 4%.

However, its sales decline has slowed to 1.3% in the seven weeks since.

This news helped send its shares up 2.8% by close on Friday. It was in talks about a possible takeover until last week, when talks fell through.

Private equity Apax Partners was believed to be behind the talks. Analysts put a price tag of about �300m on the firm.

We do anticipate that the retail market will continue to be difficult for at least the first half of 2006 Michael Wemms, chairman See HoF's share price

"We previously expected trading during the first half of 2006 to be difficult, although we are pleased that the first seven weeks have been ahead of our original expectations," said chief executive John Coleman.

Fuelling the rise in profits was a cut in stock levels by 17% and fewer items placed in its clearance sale, which helped offset the impact of wage rises and higher fuel bills.

"Whilst we are encouraged by the start we have made for the year, we do anticipate that the retail market will continue to be difficult for at least the first half of 2006," added chairman Michael Wemms.

House of Fraser, which also owns the Jenners and Beatties chains, operates about 60 department stores in the UK and one branch in Dublin, Ireland.