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Rising costs and tough trading cause Clarks’ profits to tumble

Footwear retailer Clarks has blamed a 21% slump in pre-tax profits on a combination of difficult UK trading conditions, higher product costs and a rise in promotional activity.

In papers seen by Drapers, pre-tax profit fell from £45.2m to £35.7m for the six months to July 31. Operating profits at Clarks International – which includes the UK and all markets other than North America – dropped 37.2% from £36.7m to £23m.

Chief executive Melissa Potter said in a statement to Clarks shareholders that profits in its UK retail division had been “severely squeezed by a combination of high product cost inflation and increased promotional activity to drive transaction volumes”.

She added: “Operating profits were impacted by the dilution of our margins by higher product costs in all markets.”

Group turnover grew 8.8% to £627.9m from £577.2m, which Clarks attributed to strong sales in international wholesale and franchise markets.

Potter said the wholesale business in the UK reflected many of the same trends seen in its retail stores, with customers exercising caution in their purchases as they remained nervous about the economic outlook.

She also said in the statement that an improved performance in its international markets and North America should “continue to offset in large measure the restricted volume growth and margin pressures in the UK”. Potter said growth in turnover for the full year should help Clarks come close to matching the operating profits it reported in 2010.

Clarks declined to comment. 

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