Trading blues for the budget chains

New Look said market conditions are deteriorating and warned that prices could rise by as much as eight per cent next year as a result of soaring cotton prices.

The group said like-for-like sales at UK stores fell 4.5 per cent in the 26 weeks to September 25. This was in sharp contrast to M&S, which said that like-for-like clothing and homeware sales rose by 6.3 per cent in the 26 weeks to October 2.

The results reflect a divide in the high street with less affluent shoppers feeling the pinch from public sector job cuts, while wealthier shoppers who work in the private sector continue to spend.

JJB warned that full-year results will not meet expectations after poor recent trading, increasing the chances of the company having to raise additional cash.

Shares in JJB, which came close to administration last year, closed down 17.7 per cent last night, a fall of 1.70p to 7.90p.

JJB blamed the weakening trading environment and said sales over the past six weeks have failed to match its expectations.

Like-for-like sales rose 13.1 per cent in the six weeks to November, but this figure was heavily influenced by promotions and was lower than JJB had anticipated.

Promotions have reduced the group's gross margin to 33.8 per cent from 42.2 per cent in the first half.

JJB said that current trading conditions will continue to have a negative impact on its expectations for the full year, although the outcome remains heavily dependent on its performance during the important pre-Christmas and New Year sale periods.

New Look warned that underlying sales growth is likely to remain subdued into 2011.

The group, taken private in 2004 by private equity firms Apax and Permira with founder Tom Singh, said half year group revenues rose 3.2 per cent to 731.1m, boosted by demand for harem pants and maxi dresses.

International sales, which account for about 23 per cent of the total, climbed 2.4 per cent on a like-for-like basis.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) edged up to 119.5m from 117.8m.

Fashion retailers Primark and Next have also warned in recent weeks that a near doubling in the price of cotton and January's increase in VAT from 17.5 per cent to 20 per cent will lead to price increases next year. New Look abandoned plans to float on the stock exchange in February, blaming the retreat on turmoil in financial markets.

The group's chief executive Carl McPhail said costs have risen by between seven per cent and eight per cent over the past year as a result of the doubling in cotton prices and freight costs and higher wage demands in China and Bangladesh.

The retailer aims to absorb some of the cost increases.

JJB said that a major promotional drive had failed to deliver results.

The sportswear retailer launched the price offensive for the autumn and Christmas period as part of a bid to protect its 'Serious about Sport' turnaround strategy from the impact of challenging trading conditions.

But JJB said that sales were lower than expected between late September and last weekend after the 13.1 per cent increase in the six weeks to November.

Despite the company's peak trading period still to come, analysts now expect JJB's losses to be around 40m in the year to January 31.

Freddie George, a retail analyst at Seymour Pierce stockbrokers, said he remained concerned about the strength of JJB's recovery.

"The 'Serious about Sport' strategy is sensible but with competition intensifying and competitors, in particular Sports Direct, adapting similar strategies, we remain sellers of the stock," he said.

Katharine Wynne, an analyst at Investec Securities, added that JJB's failure to attract customers into its stores despite its promotional efforts was "ominous" given the prospect of another consumer downturn.

JJB has embarked on a major store refurbishment programme following the successful trial of an out-of-town store in Slough.

Changes introduced at outlets at Wakefield, Northampton, Leicester, Enfield and Bath have included better store navigation, improved product positioning and a new point of sale area.

But good news for wh smith

Stationery and books chain WH Smith said it was positioned for more growth after revealing another quarter of solid trading.

The group achieved a nine per cent hike in full-year profits to 89m in its most recent results and reinforced this yesterday by matching sales expectations for the first quarter – covering the period between September 1 and November 6.

Like-for-like sales in its travel shops dropped one per cent, while its high street stores declined four per cent as a result of its strategy to rebalance the mix of its business towards higher-margin categories such as stationery and books.

Switching his rating on the stock from hold to add, Numis Securities analyst Andrew Wade said WH Smith continued to do the right things, although he warned the outlook for next year remained tough.

WH Smith's travel business has 516 outlets while the high street business has 573 sites.