Next (NXGPY) shares gained in early Thursday trading even as the clothing retailer warned of tough times ahead following a fall in profits during its last fiscal year.
The clothing and home retailer, a sector bellwether that warned earlier this year that its bottom line would be under pressure after it missed Christmas trading forecasts, said profits fell 3.8% to £790 million ($986.6 million) for the year ended on Jan. 31. Group sales fell 1.3%, Next said, while sales in its retail division were down 2.9%, taking operating profit down 15.8%.
Next shares posted solid early gains, however, rising more than 5% to the top of the FTSE 100 leaderboard to change hands at 4,076 pence each by 08:50 GMT, trimming their three-month loss to around 16.7% compared to a 4.8% fall for the FTSE 350 General Retailers Index.
However, the retailer said that it has been focusing too much on new trends and has been omitting some of its best sellers, which it calls "heartland products".
"We identified this issue in January," Next said. "Corrective action is relatively straightforward and began in late January. We believe that some of these changes will begin to be reflected in our Summer ranges from May onwards."
"With increasing amounts of business being transferred online, it is legitimate to question the long term viability of retail stores and whether the possession of a retail portfolio is an asset or a liability," Next said.
Retailers in the country are coming under pressure as an increase in inflation due to the fall in the pound since the Brexit vote puts pressure on wages. Inflation surged to 2.3% in February, the Office for National Statistics said on Tuesday, up from 1.9% in January.
Next said the year ahead looks to be tough, but the company "will continue to focus on improving the ... product, marketing, services, stores and cost control." It expects prices to go up by less than 5% throughout the year.
It expects total full price sales growth for 2017/18 to be between -3.5% and +2.5%, with earnings per share growth of between -12.4% and +0.5%.