UPDATE: Next Fiscal Year Pretax Profit -14%; Sees Falling Sales, Margins

U.K. fashion retailer Next PLC (NXT.LN) Thursday unveiled a 14% fall in annual pretax profit, hit by lackluster consumer demand for clothing and houseware goods, and forecast sales and margins will keep falling in the year ahead, undermined by the weak pound and a faltering economy.

Pretax profit fell to GBP428.8 million in 2008, broadly in line with market expectations of GBP427.5 million, and down from GBP498.1 million a year earlier. Revenue fell 1.7% to GBP3.27 billion.

The company said it in a statement that it was planning for a difficult year ahead, with the first half of the year expected to be "particularly tough."

Sellers of clothing, houseware and electrical goods have been hit particularly hard by the U.K. economic downturn, which accelerated in the last quarter of 2008.

Next said sales from its stores open at least one year are expected to fall by between 6% and 9% in the first half of the year, while sales from the group's catalogue and online operations are expected to be flat to 2% lower.

The weak U.K. currency will hit the company's buying power, resulting in a 3% drop in its retail operating margin to about 10%. Catalogue and online margins are expected to remain at about 19%.

Still, Next said it's well placed to weather the storm and expects to achieve a profit in the current year in line with market expectations.

While the results met expectations overall, the outlook disappointed the market and by 0840 GMT, the shares were down 27 pence, or 2.1%, at 1267 pence in a flat London market.

Nick Bubb at Pali International described the guidance as "pretty cautious, particularly for the first half." He expects small downgrades to the current year consensus pretax profit expectations of about GBP353 million.

Chief Executive Simon Wolfson said in an interview with Dow Jones that he was no more cautious now than he was at Christmas. "I wouldn't say we are optimistic," he said, "but we're not as gloomy as some others becasue we believe many consumers will be better off this year."

Although lower mortgage, energy and even food costs will result in more money in people's pockets, Wolfson said "it will take a year or so for them to start spending again ... consumers will want to rebuild their balance sheets."

One uncertainty facing the company and the retail sector in general is the weather. After two cold wet summers running, a bit of sunshine this year "will be worth a lot of money," Wolfson added.

Company Web site: www.next.co.uk

-By Lilly Vitorovich, Dow Jones Newswires; 44-0-207 842 9290; lilly.vitorovich@dowjones.com

(Kimberly Vlach contributed to this article.)

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