Gap said international like-for-like sales dipped 1% in its fourth quarter to January 29 and warned that it expected operating margins to be squeezed in 2011 because of cost inflation driven by rising cotton prices.

The US clothing giant, which owns Gap, Banana Republic and Old Navy, said that while fourth quarter like-for-like sales were down slightly, like-for-likes for the full year for its international business were up by 1%, representing an improved performance on the previous year which saw comparable sales fall by 4%.

Overall the company made a profit of $14.66bn (£9.1bn), with $1.92bn (£1.19bn) of this coming from its international division.

At the same time as it released its fourth quarter results the company also raised its 2011 share dividend and approved a $2bn (£1.24bn) in additional share buybacks.

The company has said its focus for 2011 would be to continue remodelling its large-format Old Navy stores in the US, while opening company-owned and franchise stores internationally including about 10 to 15 stores in China, 8 to 10 stores in Italy, and 25 outlet stores.