Annual profits have fallen at Ireland-based retailer Musgrave as a hike in costs offset an increase in sales.

Musgrave, which runs stores in Ireland, the UK and Spain, reported net profit of EUR60.8m (US$77.6m) for 2011, down 1% on 2010. Operating profit slid 1.7% to EUR74.3m.

Higher selling and distribution costs hit earnings. Sales were up 1.6% at EUR4.46bn on the back of last year’s acquisition of Superquinn after its fellow Irish retailer fell into receivership.

Chief executive Chris Martin said the outlook for 2012 “remains challenging, especially in Ireland”. Martin said he expected “little to no growth” in the Irish grocery market.

However, he added: “Our brands are performing well with positive sales growth in both the Irish and British markets.”

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