Next reports first profit fall since 2009 and warns of tough year ahead

Next (Frankfurt: 779551 - news) has reported its first fall in annual pre-tax profits in eight years and warned of another tough year to come.

Profits fell 5.5% to £790m as full price sales dropped 1.3% during the year to January, the fashion retailer said.

It said it was "extremely cautious" about the year ahead as it faced a series of threats including a squeeze on consumers' real terms income as inflation rises and wage growth stalls.

Next had already warned of weaker profits earlier this year after its Christmas trading performance missed forecasts.

The retailer confirmed that it had hiked prices by 4% on average for the first half of the current year.

It warned they would remain under pressure for the second half from rising costs driven by the collapse in the value of the pound after the Brexit vote.

Chief (Taiwan OTC: 3345.TWO - news) executive Lord Wolfson said: "The year ahead looks set to be another tough year for Next.

"We remain clear on our priorities going forward. We will continue to focus on improving the company's product, marketing, services, stores and cost control."

Next said: "We remain extremely cautious about the outlook for the year ahead."

It pointed to three key threats: a shift away from consumers spending on clothing and towards pubs, restaurants and entertainment; higher prices; and a squeeze on real incomes.

"These headwinds are likely to be felt most acutely in our retail business, as sales continue to migrate away from the high street to online shopping," the group said.

But there was reassurance for investors as the company did not change its profit guidance for the current financial year. After an initial dip, shares closed 8% higher.

They had previously fallen by more than 40% over the last year.