Next has warned that the year ahead is “uncertain” despite both profits and sales at the high street retail group increasing last year.

Sales across the group increased by 4.3% to £3.5bn for the year to January 28 despite underlying sales in existing retail stores dropping 1.4% to £2.19bn.

However this decline was compensated by the continued growth of its online business, the Next Directory, which now accounts for nearly a third of the group’s total turnover. Next Directory sales soared by 16.4% to £1.09bn. The retailer also added profitable new retail space adding 2.9% to group sales.

Operating profit rose by 5.6% to £598.7m and Next’s international sales increased by 13.4% to £76.3m.

Sales at young fashion brand and retailer Lipsy increased by 22.8% to £54.9m with the sales increase coming from Lipsy stores and online sales. Online sales increased by 70% to £9m with the biggest growth coming from the Lipsy tab on the Next Directory site.

Next chairman John Barton said the group’s figures were “an excellent result in a year when the UK economy, our largest market, has struggled for growth.”

However he added: “Next year will bring its own challenges, particularly as growth in the UK will remain sluggish. We continue to believe that we will deliver growth by investing in the brand, improving our products and managing the business well.”

In the statement released this morning the retailer said: “The outlook for the year ahead is very uncertain, and in this environment we think it is sensible to again be cautious in our budgeting.” It added that employment and credit availability would remain as two constraints to growth in consumer spending.

Next said it is too early to give a full year forecast but its budget for the first half is for brand sales to be up between 1% and 4%, with retail sales between 0% and -3% and directory between +9% and +12%.

It added that the growth in the first quarter’s sales is likely to be lower than the second, as last year’s first quarter was boosted by an exceptionally warm Easter and the Royal Wedding.

Next chief executive Lord Wolfson said: “Next has performed well in a difficult year, delivering good growth in sales and profits combined with exceptional advances in earnings per share and dividends.

“The year ahead looks no less challenging but the group is well prepared and has further opportunities for growth. We remain strongly cash generative and have every chance of delivering another year of increased sales.”

The retailer revealed it has identified 19 new sites to roll-out its home and garden format which debuted in Shoreham last year. Wolfson expects to open at least two in the current year near Ipswich and Warrington.