British retailer Next cuts 2016/17 profit guidance, warns on 2018

LONDON (Reuters) - British clothing retailer Next on Wednesday cut profit guidance for its current financial year and warned on the outlook for the next, highlighting "exceptional" levels of uncertainty in the sector.

Next, which trades from about 540 shops in Britain and Ireland, from franchised stores overseas and online, has been Britain's most successful clothing retailer of the last decade but 2016 proved to be its toughest year since 2008 and its shares fell by a third.

The firm has said Britons are spending less on clothes and instead splashing out on holidays, eating out and events. It is also braced for costs to rise following the plunge in the pound after Brexit and higher wage bills.

 

Kicking off the UK Christmas trading update season Next said its central guidance was for pretax profit of 792 million pounds ($971 million) for its year to Jan. 2017, down from the 805 million pounds it had previously forecast.

The firm also set out its expectations for the 2017-18 year, predicting a pretax profit range of 680-780 million pounds, below analysts' average forecast of 784 million pounds, according to Reuters data.

"The fact that sales continued to decline in quarter four, beyond the anniversary of the start of the slowdown in November 2015, means that we expect the cyclical slow-down in spending on clothing and footwear to continue into next year," said the firm.

In the 54 days to Dec. 24, the bulk of its fourth quarter, its full price sales fell 0.4 percent, compared with a third quarter fall of 3.5 percent.

It cautioned that it may see a further squeeze in general spending as inflation begins to erode real earnings growth.

Next also reiterated that following the devaluation of Sterling it expects prices on like-for-like garments to rise, but by no more than 5 percent. It expects that this will depress sales revenue by around 0.5 percent.

The firm forecast full price sales for 2017-18 in a range of down 4.5 percent to up 1.5 percent.

Next also highlighted increased costs it faces in 2017-18, including the National Living Wage, higher business rates, the apprenticeship levy and higher energy taxes.

($1 = 0.8157 pounds)

(Reporting by James Davey; editing by Kate Holton)