A rise in costs and VAT hike will give a New Look to chain's prices

New Look has become the latest big high street name to warn that the rising cost of cotton and the new year VAT hike will lead to higher prices.

The private equity-owned group issued the warning yesterday as it revealed that like-for-like sales at its UK stores slipped 4.5 per cent in the past half-year, compared with growth of 7.5 per cent in the same period the previous year.

Chief executive Carl McPhail said about half of the decline was due to disruption following a relocation of the firm's buying, merchandise and design teams. But he warned that the underlying sales performance was likely to remain subdued.

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Fashion retailers Primark and Next have both issued cautious outlooks in recent weeks, noting 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 hikes.

McPhail echoed Next boss Simon Wolfson by saying price rises were likely to be towards the top of a 5-8 per cent range.

New Look, which abandoned plans to float in February, said its share of the UK fashion market increased from 5.7 per cent to 6 per cent in the first half, helped by the opening of 16 UK stores in the previous year.

Group sales were up 3.2 per cent to 731.1 million, boosted by demand for "harem pants" and maxi dresses, a strong performance overseas and from its websites.

McPhail claimed the chain, which ranks as Britain's second-biggest womenswear retailer by value of sales, was also closing the gap on online specialist Asos.

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 a year earlier.

The group, which runs more than 1,000 stores in Britain and abroad, said in February it hoped to raise 650m in a flotation to reduce its 1 billion of borrowings. But investors were wary of the plan, particularly after department store chain Debenhams returned to the stock market in 2007 laden with debt and saw its shares dive.

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McPhail said last month he was cautious about prospects for a new flotation attempt next year.

Meanwhile, sportswear retailer JJB Sports fuelled worries about the strength of its recovery yesterday as it admitted that a major promotional drive had failed to deliver results.

The chain 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.

However, JJB said that sales were lower than expected between late September and last weekend after a rise of 13.1 per cent on a like-for-like basis.This was in line with the trend over the rest of the financial year as the group said trading conditions were having a negative impact on its expectations.

Despite the company's peak trading period still to come, City analysts now expect losses to be about 40m in the year to 31 January. Seymour Pierce analyst Freddie George said he remained concerned about the strength of JJB's recovery.