Next, posting profit fall, ‘extremely cautious’ about year ahead

Next is "extremely cautious" about prospects for the year ahead, it said on Thursday, as it reported a 3.8 per cent fall in annual profit.

The clothing retailer, which issued a profit warning in January, said it made underlying earnings before tax of £790.2 million (€912 million) in the year to January 2017.

That compared with Next’s latest guidance of £785 million to £799 million, analysts’ average forecast of £793 million, and £821.3 million in 2015-16.

“The clothing sector faces three potential threats: a sectoral shift away from spending on clothing, price inflation as a result of sterling’s devaluation, and potentially weaker growth in real incomes in the wider economy,” Next said.

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“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.”

Next did, however, maintain the guidance it issued in its January trading statement for the 2017-18 year: full-price sales, at constant currency, in a range of down 4.5 per cent to up 1.5 per cent, and pretax profits of £680 million to £780 million.

Long Britain’s most successful clothing store chain, Next has faltered over the past two years. Its shares, which have slumped 41 per cent over the last year, closed on Wednesday at 3,885p, valuing the business at £5.71 billion (€6.6 billion).

The company has also highlighted inflationary pressures on its cost base, including a government-mandated national living wage, business rates, apprenticeship levy and energy taxes.

Analysts are concerned as well about a declining number of credit customers at Next’s online directory business, as rivals step up investment and eat into its once leading position.

– (Reuters)