Next sees toughest trading for 25 years

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Fashion chain Next has set out a gloomy outlook for the high street as it reported a second successive set of falling annual profits and warned of a further decline next year.

The FTSE 100 retailer said it had experienced its toughest period in a quarter of century as pre-tax profits for the year to 27 January slipped 8% to £726m – and said more “challenging” times were to come.

Like-for-like full price sales in stores fell by 9.1% while in marked contrast, online full price sales were up 11.2%.

The group expects sales declines in its stores to continue as shoppers shift to online and is looking closely at ways to mitigate the downturn.

That includes closing some locations as leases come up for renewal, with ten expected to shut in the coming year.

It is also looking at introducing cafes, restaurants and other concessions that generate additional revenue and footfall to stores.

Next summer 2018 undated handout downloaded from media website 23/03/18
Image: Next saw in-store sales fall

Chief executive Lord Wolfson said: “In many ways 2017 was the most challenging year we have faced for 25 years.

“A difficult clothing market coincided with self-inflicted product ranging errors and omissions.

“At the same time, the business has had to manage the costs, systems requirements and opportunities of an accelerating structural shift in spending from retail stores.”

Next said it expects to see profits fall again in the 2018/19 financial year as sales decrease further and the wider economy, high street and clothing markets struggle.

However, it also expected to see a more “benign” outlook for the group’s costs in the months ahead as the pressure caused by the slump in the pound eases.

The retailer also pointed to signs that a squeeze on real incomes – which has seen wage growth lagging behind inflation in recent months – looked set to ease in 2018.

Shares rose 6%.

Russ Mould, investment director at AJ Bell, said: “It is what is missing from the statement that matters more than what is in it – there is no profit warning, there is no dividend cut and there is no sense of panic.”

Richard Hunter, head of markets at interactive investor, said Next was going through “tough times” though its plans for improvement might offer some grounds for optimism.

But he added: “Next has given itself a mountain to climb over the coming year and it remains to be seen whether the improvements are achievable.”

George Salmon, equity analyst at Hargreaves Lansdown, said: “The headwinds facing the clothing sector, which include cost inflation, weak high street footfall and tighter consumer spending, are well known.

“However, the fact Next says it’s endured the toughest year since it’s near-death experience in the early 1990s, underscores the extent of these challenges.”

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The Next update comes at the end of a bleak week for the high street, with a profit warning from Moss Bros, large scale store closures in prospect at Carpetright and tough trading at B&Q.

Official figures on Thursday showing an upturn in retail sales in February did little to lift the gloom as some retailers also began to reveal the damaging impact of the “Beast from the East” weather system over recent weeks.

From – SkyNews

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