Clothing retailer Next is trying to stay upbeat after it warned that waning consumer demand would make 2005 a "challenging" year.

The group, which owns approximately 25 stores across the Midlands, said that like-for-like sales in its 279 outlets unaffected by new openings declined 0.9 per cent in the seven weeks to March 20 compared with growth of 3.6 per cent during the previous year.

Next chief executive Simon Wolfson said: "We're not too worried about this. Everyone always knew that at some point there was going to be an easing in consumer demand - it's not like it's fallen off a cliff."

Next, which sells midprice fashion and homewares, announced an 18 per cent rise in pretax profits to £423 million for the year to January 31 on turnover that was 13 per cent higher at £2.86 billion.

Profits were at the top end of hopes after analysts revised their numbers, following a downbeat trading statement from the Leicester-based group at the start of 2005. Next guided the market towards a lower figure after being forced to slash prices to clear excess stock.

Mr Wolfson also said that rising costs meant a "more conservative approach" to price cuts was now necessary. Total sales from its retail arm, since January, were 8.2 per cent ahead of the previous year, with sales at its Next Directory catalogue business ahead by 10.4 per cent.

Menswear sales had improved slightly since January and the company said that it was not too concerned about excess stock despite the recent sales drop. Next has only a small mid-season sale compared with rival retailers.

Next also faces a £3 million hit from higher energy bills and the application of new business rates would cost it a further £4 million this year, he added. In 2004, the company increased its total selling space by 17 per cent as it continued to focus on larger stores.

Next is currently developing a site at Wednesbury retail park.