Profit at Zara’s UK business fell by more than a third last year as the fashion chain slashed the dividend paid to its Spanish parent.

Pre-tax profits dropped by 34.5% to £33.9m in the year to the end of January as rising costs outstripped sales growth, annual accounts of the UK subsidiary showed. The annual dividend it paid to Inditex, the world’s biggest clothing retailer by sales, fell to £22m from £30m a year earlier.

Zara UK’s plan last year was to strengthen profitability by increasing sales, controlling costs and increasing margins, the accounts said.

Total sales rose 3.4% to £457.8m but the gross margin narrowed to 54.7% from 57.4% and the cost of goods for sale rose 10% to £207.6m. Sales and distribution expenses increased 7.2% as Zara refurbished three large stores in London and Manchester and about 10 smaller branches.

The retailer said there was no relationship between the fall in profit and the reduced dividend because the results were a snapshot. She said Zara was happy with how the UK business had performed since January.

Fashion retailers’ profit margins came under pressure last year amid heavy competition on the UK high street, particularly in the runup to Christmas. Chains such as Debenhams, French Connection and New Look cut prices as shoppers with weak spending power delayed purchases.

House of Fraser, the department store chain, said like-for-like sales in the six months to the end of July rose 4.2% with the pace of growth picking up each month in the second quarter. Menswear was its top performer, with sales up 9.7% in the first half.