Next predicts ‘challenging year’ ahead as profits drop 1.5%

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British clothing retailer Next has warned that trading will continue to be difficult as it reported a 1.5 per cent fall in first-half profits on Thursday.

Next, UK second biggest fashion retailer, pre-tax profit fell 1.5 per cent to £342.1 million for the six months to the end of July, down from £347.1 million a year earlier.

Despite reporting a strong sale performance in July which boosted trading towards the end of the first half, Next dashed hopes of a bounce-back in consumer spending since the EU referendum.

Lord Wolfson, chief executive, repeated warnings first made last month that the retailer may have to hike prices by up to 5 per cent next year to offset the weaker pound.

"There has been some talk of a general retail bounce in July and whilst Next did enjoy very strong sales in July, this was driven by a much larger end-of-season sale," Lord Wolfson said.

"Full price sales in July remained subdued, so we do not believe that July trading represented any change in underlying consumer spending patterns. Trading since July has remained challenging and volatile," he added.

Next has been Britain's most successful clothing retailer of the last decade but Wolfson warned in March that 2016 could be its toughest year since 2008. Its shares have fallen by over a quarter so far this year.

The company was one of the biggest fallers on the FTSE 100 on Thursday morning with shares down more than 4 per cent.

“There continue to be some worrying signs for Next,” Simon Bowler, Exane BNP Paribas analyst, told Bloomberg

“Next have played down any suggestion of consumer strength in July and believe demand continues to look subdued,” he added.

The company's group overall sales rose 2.6 per cent year-on-year to £1.96 billion in the six months to July, from £1.90bn a year earlier helped by a growth in Next’s catalogue delivery business.

Next results came as John Lewis posted a 75 per cent drop in profits for the six month to July, citing "deep structural changes in the retail market".

The profits slump includes an exceptional charge of £25 million for the write down of property assets it no longer plans to develop for Waitrose.