Next Warns Over Profits Ahead Of 'Toughest Year Since 2008'

Next Warns Over Profits Ahead Of 'Toughest Year Since 2008'

High street giant Next warned the year ahead was set to be the "toughest we have faced since 2008" as it cautioned over profits amid fears of a consumer spending slump.

The retail bellwether's gloomy prediction sent its shares tumbling to their lowest level for more than two years - down as much as 10% - and sparked losses among listed clothing rivals Marks & Spencer and Debenhams.

Next said it was bracing itself for a slowdown in consumer spending on a level not seen since the financial crisis and for profits to fall by up to 4.5% as global and UK economic growth eases back.

Chief executive Lord Wolfson said that, as well as the wider economic woes, it also fears consumers are shifting spending away from clothing towards other areas, such as eating out and travel.

He said: "The year ahead may well be the toughest we have faced since 2008."

"There's going to be a consumer slowdown this year, but we're not going as far as predicting a recession," he added.

Its warning came despite the group reporting a "solid" set of annual results, with underlying pre-tax profits up 5% to £821.3 million for the year to the end of January and Next brand sales rising by 3.7%.

But it had already warned over results in January after unusually warm weather in December led to a disappointing Christmas performance.

It is forecasting profits for the year to the end of January 2017 of between £784 million and £858 million - ranging from a fall of 4.5% to growth of 4.5%.

The group's predictions for full-price Next brand sales - a key measure of the company's performance - range from a fall of 1% to growth of 4%.

Lord Wolfson said while trading in January had been "good", the volatility of its sales performance since the beginning of the year has added to fears of a consumer slowdown.

The group's gloomy comments will spark concerns for UK growth, which has been propped up by consumer spending and a thriving services sector in recent years.

Retail analysts at Peel Hunt said it was "not unusual" for Next to be overly cautious, but said it appears "this time they mean it".

Next's annual results showed sales across its 540 stores rose 1.1% after growth was held back by a dismal Christmas performance, when sales dropped 0.5%.

It posted growth of 7.7% across its Next Directory online and catalogue arm, which marked a sharp slowdown on the 12.1% surge the previous year as the festive trading woes were compounded by stock shortages and tougher online competition.

The group set out a plan to help it weather tougher trading, including revamping its Directory arm and introducing two-hour delivery slots towards the end of the financial year.

Lord Wolfson said: "It may well feel like walking up the down escalator, with a great deal of effort required to stand still.

"It will not be the first time we have felt this way, and our experience is that the effort put into improving the business in tough times can pay handsome rewards when conditions improve."

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