Next vows to shun mass discounting as profits slip 14 per cent

Next, the fashion giant, has vowed to stick to its principles of not following the hefty discounting of rival retailers, despite being "pessimistic" about trading conditions in the first half of this year and posting a 14 per cent fall in full-year pre-tax profits to £428.8m.

The retailer also revealed that it plans to open a further 10 stand-alone home stores – accounting for half of its new retail floor space this financial year – as all but one of its 10 existing home stores are profitable. However, it warned that the recent rapid depreciation in the value of sterling would lead to an increase of up to 5 per cent in the price of its clothes in the second half.

Simon Wolfson, the chief executive of Next, said: "Going forward, we believe the increase in promotional activity on the high street will continue, albeit that more realistic budgeting in the sector may result in less markdown immediately prior to Christmas. Next intends to continue trading at full price at all times, other than at our traditional end-of-season and mid-season sales

In a thinly veiled dig at its rivals, without naming them, Mr Wolfson said that an increase in promotional activity must logically involve either the "surrender of margin" or the "artificial raising" of initial prices in order to offer them as a "bargain" at a later date.

Rivals, including Marks & Spencer and Debenhams, engaged in ferocious price cutting before Christmas, which led Nick Bubb, the Pali International analyst, to forecast the "death of full-price retailing". Next never discounts in the run-up to Christmas, which leads to queues outside some stores for its post-festive sales.

For the full year to January 2009, Next's total sales slipped by 1.7 per cent to £3.2bn and its like-for-likes tumbled by 6.5 per cent. Its earnings per share fell by 7.5 per cent to 156p.

However, Mr Wolfson said he expected trading conditions in the first half of 2009 to be worse than the same period last year. "In the first half, it is sensible to be pessimistic," he said. Next does not expect a return to positive underlying sales this financial year. Mr Wolfson conceded: "Next's market position at the top end of the mass market is not the most comfortable place to be during a recession."

On its clothing offer, he admitted that two years ago it had been called "boring." But he said it had significantly improved its levels of "newness" over the past year and had been "more aggressive in backing new trends" and "taking more fashion risks". Sales at Next Directory, its catalogue and online business, grew by 2.1 per cent over the year.

Over the next year, Next plans to open 25 new stores – net – and that half of this space will be its homeware stores. Given the travails of the homeware sector, Mr Wolfson conceded the expansion may be "counter-intuitive", but he said: "Where we have opened home stand-alone stores they have delivered a very good return for us." Its only unprofitable home outlet is on London's Tottenham Court Road, best known for its electricals and homeware shops.

Next maintained its final dividend at 55p, which is 2.8 times covered by earnings.