RETAILER JD Sports Fashion today boasted a 26% rise in annual profits as it sailed clear of recession - but warned of "increasing challenges" ahead.

JD said pre-tax profits before exceptional items increased to £67.4 million in the year to January 30, up from £53.6 million last year.

The firm said it had proved resilient "in the face of less than favourable economic conditions and exchange rates".

Like-for-like sales, which were 2.5% higher last year, have slowed to 2% in the 10 weeks to April 10, but the firm said margins in its fashion business had improved.

"We recognise the increasing challenges of strong comparatives and the current economic and fiscal threats to consumers’ expenditure," the company said.

JD said current trading in the UK and Ireland was ``encouraging''.

In its sports division total revenue increased 10% to £615.5 million in the year, while like-for-like sales grew 2.3%.

The firm has 345 JD and Size? outlets as well as 75 branches of sports shoe retailer Chausport in France, which it bought last May.

JD said it was particularly pleased with improved margins in the division, helping operating profits before exceptionals rise to £64.1 million.

It attributed its success to stock management, its own brand strength and "competitor failures and weaknesses".

JD has stood out among its struggling rivals in the economic downturn, partly due to its fashion focus rather than a dependence on replica football kit sales.

The firm’s fashion brand Bank, which is mainly based in the North and Midlands and sells branded items aimed at teenagers and those in their twenties, saw operating profits before exceptional items rise to £3 million, compared to £1.2 million the previous year.

The number of Bank stores grew from 54 to 65 last year and JD said it is expected to be the "core" of future growth in its fashion business.

Scotts, JD’s other outlet in this division, sells branded fashion to younger men and has 38 stores mainly in the North and Midlands.

JD said the chain, which made an operating profit before exceptionals of £300,000 in 2009, had made a "relatively disappointing" start to the new year and the management team had consequently been "strengthened".

The group embarked on an overseas buying spree last year, following up the Chausport acquisition by snapping up rugby brands Canterbury and Canterbury of New Zealand as well as related distribution assets.

The Canterbury brand, which sells clothing, footwear and accessories, is tipped to have "scope for product and distribution extension".

It also bought Kooga Rugby in Rochdale and Duffer of St George, which it now uses as an own brand label in its JD stores.