Next warns over bleak outlook

Next said trading conditions in 2011 were likely to get worse before they get better, as it posted an expected nine per cent rise in profit for the year.

"Retailing will feel like walking up the down escalator – we will have to work hard to stand still," Chief executive Simon Wolfson, said.

The retail group, which runs over 500 stores in Britain and Ireland as well as the Directory home shopping business, said its average prices were up about six per cent so far this year but it expected rises of between eight and ten per cent in the second half.

It estimated total first-half sales in the range of down 0.5 per cent to up 2.5 per cent.

It said if total sales for the 2011-12 year fell within this range then pre-tax profit would be between £520m and £570m – in line with current market expectations.

A raft of retailers have said trading conditions have got harder since Christmas as shoppers have had to deal with tax rises, inflation, uncertain employment prospects and government spending cuts. Retailers are also facing significantly higher input costs.

Next made a pretax profit of £551m in the year to end-January.

That was in line with company guidance of £540-£555m and up from £505m in 2009/10.

Group revenues increased one per cent to £3.45bn.

Next is paying a total dividend of 78 pence, up 18 per cent.

Shares in Next, which have lost nine per cent of their value over the last six months, closed on Wednesday at 1,965 pence, valuing the business at £3.53bn.