Next posts first drop in profits for eight years, warns of price rises

High street giant Next has, as anticipated, posted its first drop in profits since the financial crisis eight years ago and has warned of higher prices for consumers on the back of sterling's slide in value as a result of the Brexit vote.

Profit before tax for the 52 weeks to the end of January 2017 was down 3.8% at £790.2m on total sales that were broadly flat at £4,136.8m.

Once again Next Retail sales took a hit and were down 2.9% while Directory was up 4.2% which the group said was a reflection of the consumer's migration to online shopping, better stock availability, improved site functionality and a growth in its LABEL multibrand business. Overall full-price sales were down 4.6%.

Next admitted that it had experienced issues with its product. The business has been changing its buying practices to allow it to better respond to trends and restock fast-selling items but said that while this practice had been successful it had meant the business had omitted to stock some of its core bestselling items.

"These are the easy to wear styles that can be delivered in large volumes and great prices across several colours," the group said in a statement and said corrective action was underway to ensure the product range was more balanced moving forward.

Customers, however, can expect higher prices. As the business had previously flagged selling prices for the spring collection are up 4% due to the slump in sterling following the Brexit vote, which has pushed up retailers' costs. It has warned that pressure on prices remains an issue and prices are likely to rise by a similar amount this autumn.

Should sterling stabilise pricing pressure should ease next year, its statement said. "The inflation in our cost prices and the wider economy looks like it has been driven mainly by the devaluation of the pound. In the event that devaluation is a one off adjustment and sterling does not devalue again in 2018, pricing pressure should ease as we go into the second half of 2018. By the same logic, the pressure on real wages from rising inflation may also work its way through the system by the middle of 2018," it said.