Clothing retailer Next has reported its worst like-for-like sales result in a decade and given up on hopes of a trading upturn this year.
The retailer reported a six per cent fall in like-for-like sales for the past six weeks and, although it thought the rest of the season was unlikely to be as bad, believed it was "unlikely" there would be a significant improvement in market conditions for the second half of the year.
"We think it's going to be tough all the way to Christmas," finance director David Keens said. "We have been reducing the amount of orders we've been placing with suppliers.
"From initial second half budgets we have cut stock back by about three per cent so far, and we would like to cut those by another two per cent."
However, with profits rising by 6.1 per cent to £172.6 million, Next performed ahead of City expectations in the first half of the financial period - despite a drop of 2.9 per cent in like-for-like sales at its core retail estate.
The company said sales from the Next brand, which includes its directory business, improved to £1.3 billion in the six months to the end of July, from £1.2 billion a year earlier. Profits lifted to £161.9 million, against £150.8 million last time.
During the period it added 437,000 square feet of space, following the opening of 27 new stores in the six months.
Next described the performance as "solid progress in a very tough environment" and said it had been helped by growth from the new trading space - particularly outoftown sites where it can offer wider ranges of clothes and home- based items. The retailer now trades from more than 400 outlets.
Mr Keens said the recent fall in like-for-like sales was down to consumers feeling the pinch. The figure for the six weeks was also up against a strong performance from a year earlier.
"We think it's to do with the economic climate and the fact that consumers have to spend more money on mortgage payments and fuel and other fixed costs," Mr Keens said.
"It was good to see interest rates come down last month but most people have not seen any impact as their mortgage has not been reset yet."
Richard Hunter of Hargreaves Lansdown stockbrokers said sentiment towards the company remained positive.
Mr Hunter, who is head of equities, said: "Given the tough trading conditions in which Next is embroiled, the shares have retained their rating as the retailer of choice in this space. Market sentiment remains positive on the company's outlook."
Mr Keen said that Europe's dispute with China over textile imports had not affected Next financially, and though some goods for late-September and early-October were held up in ports, most have now been cleared.
The interim dividend was increased 7.7 per cent to 14 pence.