• Next underlying pre-tax profits rise 5% in year to January 2016
  • Sales rise across its bricks-and-mortar and directory businesses
  • But boss Lord Wolfson warns this year could be its “toughest” since 2008
  • Retailer maps out its five key priorities for the current financial year

Next has posted a 5% uplift in full-year profits but boss Lord Wolfson warned that this year could be the retailer’s “toughest” since 2008.

The fashion behemoth said underlying pre-tax profit increased to £821.3 during the 52 weeks ended January 2016 – up from £782.2m the previous year.

Total sales across its bricks-and-mortar stores and its directory business advanced 3.7% to £4.03bn during the period.

Within its retail business, sales edged up 1.1% to £2.37bn as profits grew 4.8% to £402.1m.

Next said net new space contributed 2.4% towards the sales growth. Full price sales were up 2.2% and net margin advanced to 16.9% from 16.3% the previous year.

The high street bellwether admitted this was “surprising” and attributed the margin gains to its buying teams “over-achieving” against targets during the spring and summer seasons, helped by “better” currency rates.

Next directory sales grew 7.7% to £1.65bn during the year as the retailer posted a 7.5% uplift in profits from that division despite suffering from “poor” stock availability during the second half of the year.

During the autumn and winter seasons, shoppers switched to purchasing more from the retailer’s mid-season ‘New In’ brochures, rather than its large seasonal catalogue.

Next said it had “increased directory’s overall stock holding” for the spring and summer seasons this year. It has also made a “more fundamental change” ahead of the autumn and winter seasons, when it will allocate more of its buying budget to products appearing in its smaller ‘New In’ brochures.

Chief executive Lord Wolfson said “economic and cyclical factors” would potentially work against Next during what could be a “challenging” 2016/17. He said: “The year ahead may well be the toughest we have faced since 2008.

“We are very clear on our priorities going forward and whatever challenges we may face, it is important that we remain focused on ensuring that the company’s product, marketing, services and cost controls all improve in the year ahead.”

Lord Wolfson added: “It may well feel like walking up the down escalator, with a great deal of effort required to stand still.

“It will not be the first time we have felt this way, and our experience is that the effort put into improving the business in tough times can pay handsome rewards when conditions improve.”

Those efforts to “improve the business” during 2016 will focus on five key areas.

The retailer aims to develop the Next brand by advancing buying and design capabilities and responding quicker to new fashion trends.

It also plans to upgrade its Directory after admitting the business “inevitably slowed” as it matured.

Next said it will implement “new online advertising and email techniques for recruiting new customers and reactivating existing customers” while also improving the look of its website.

The retailer will continue to invest in online growth businesses overseas, an area that will include the development of its international delivery hubs.

It also wants to continue investing in opening “profitable” new stores and controlling costs by “constantly innovating and developing more efficient ways of operating”.