Next reports slump in profits and warns of challenging year ahead

'In many ways,' Next says, '2017 was the most challenging year we have faced for 25 years'

Next has struggled to manage the costs associated with an accelerating structural shift in customer spending from retail stores to online (Next)

Next has reported a slump in profits for 2017 and has warned that this year will be another challenging one.

The group, broadly considered a bellwether for high street retail, said on Friday that annual pre-tax profits had slid by 8.1 per cent to £726.1m.

It attributed the fall to a weak clothing market coinciding with “self-inflicted product ranging errors and omissions”.

It also said that the company had struggled to manage the costs associated with an accelerating structural shift in customer spending from retail stores to online.

“In many ways,” Next said, “2017 was the most challenging year we have faced for 25 years.”

Total sales dipped 0.5 per cent to £4.1bn with revenue at Next's bricks-and-mortar shops falling 7.9 per cent to £2.1bn. Online sales rose by 9.2 per cent to £1.88bn.

Neil Wilson, a senior market analyst at ETX Capital said that this profit mix means that looking at the store estate should be “at the top of the agenda for the firm”.

“At present it is hard to get away from the fact that Next seems to have too much floor space – and is increasing it - when consumer habits are shifting so decisively online,” he added.

The company's latest earnings come as a slew of traditional high street names scramble to shore up their balance sheets in the face of a rise in inflation, increasing wages, higher business rates and fierce competition from online-focused retailers like Amazon, but also newer entrants to the market, like Asos and Missguided. Primark’s cut-price offering has also ramped up competition too.

Earlier this week New Look announced that it was shutting 60 stores, cutting almost 1,000 jobs, while investors and shoppers have also been fretting for the financial health of chains like Moss Bros, Carpetright and Mothercare.