Next sees first annual profit fall in eight years

Next has reported its first fall in annual profit for eight years and warned of "another tough year ahead".

Pre-tax profit at the clothing and homeware retailer dropped 5.5% from £836.1m to £790.2m last year.

The firm, which had already warned profits would fall, said it remained "extremely cautious" about trading.

It said shoppers were shifting their spending away from clothing, at the same time as inflation was rising and incomes were being squeezed.

The profit drop in 2016 was the first for the retailer since the financial crisis of 2008.

Despite the fall, investors sent Next shares 8% higher on Thursday.

Richard Hunter, head of research at Wilson King Investment Management, said investors were pleased with growth in the directory business and further details on a special dividend.

Sales at Next's online and catalogue business rose 4% to £1.7bn. But the retailer said shoppers continued to shift away from the High Street, as sales at its bricks-and-mortar business fell 3% to £2.3bn.

Next chairman John Barton said: "Trading conditions in the year ahead will continue to be tough, however I believe that by focusing on our core strengths, as we did during 2008, we will see Next emerge from this period stronger than before."

Next has "had a remarkable record of out-performing its main competitors", especially M&S, in the past eight years, said Bryan Roberts of retail consultancy TCC Global.

But the "general malaise" for retailers is now catching up with them, Mr Roberts told the BBC.

"We're spending less money on things and more on experiences or leisure," he said, adding that rising inflation and slowing growth in wages was also putting retailers under pressure.

There was also a "bit of an admission of guilt from Next" that they were "chasing the more fashionable end of the market and neglecting some of their core, mainstream ranges", he said.

Next said that by focusing energy on "adopting exciting new trends" it had omitted some of its "best-selling, heartland product from our ranges".

It said this would improve in the summer ranges, but added "we will not have our ranges where we want them until the autumn season".

Among the other challenges it was facing, Next warned that price inflation, which it attributed to the fall in sterling, might not ease until the second half of 2018.

It also said that with more and more shoppers going online, it was "legitimate to question the long term viability of retail stores".

Chief 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."