Department store chain Myer is cautious about the year ahead as it faces increased costs and a challenging economic and consumer environment.

Chairman Paul McClintock said that while sales in the first quarter reflected a modest improvement in consumer sentiment following the September election, the challenging retail and economic environment continued.

“We … remain cautious about the year ahead given the challenges of the economic outlook and consumer confidence,” Mr McClintock told the company’s annual general meting in Melbourne on Wednesday.

He said the business would be affected by major refurbishments and face increased operating costs in full year 2014.

“As we move into full year 2015, we expect to benefit from improved operating leverage and stronger fundamentals as a result of the completion of major refurbishments, the online business becoming profitable, and the ongoing optimisation of our store network,” he said.