• FY profit up 9%
  • Sales rise 1%
  • Capacity issues in China

UK clothing retailer Next has booked a rise in full-year profits, but says prices are rising as a result of higher costs.

Next also reported increasing difficulty getting stock into the business on time from its suppliers in the second half of the year, which it said was mainly as a result of manufacturing capacity constraints in the Far East, especially China.

Production constraints in China came from a combination of increasing domestic demand and the fact that some suppliers exited the industry during the 2008/9 downturn, Next said.

The company said it has taken steps to secure capacity through the addition of new suppliers and booking fabric and production earlier, and it now expects stock levels to be at least 10% ahead of last year throughout the season.

For the year to January 2011, Next reported a 1% revenue increase to GBP3.45bn (US$5.58bn) and 9% profit rise to GBP551m. Profit before tax was at the top end of previous guidance and in line with market expectations, the company said.

The company said it continued to grow its online business through the Next Directory, which now accounts for 27% of group sales and 40% of profits.

A statement by Next chief executive Simon Wolfson said: "Retail in the UK is going to be different over the next few years. The consumer environment is likely to be dominated by the challenges of global inflation, public sector cuts and limited growth in consumer credit.

"These factors mean that retailers cannot plan for never-ending growth in like for like sales that many have enjoyed over the last fifteen years."

In its outlook Next said it expected the consumer environment to be somewhat more challenging than it was in 2010, forecasting a 0.5% fall in FY profit to GBP520m.

Next chairman John Barton added: "Increases in VAT, cotton prices and labour rates in many of the countries in which we source means the price of our products are rising at a time when our customers are experiencing increased demands on their income.

"However, we believe Next can continue to thrive by keeping to our strategy of investing in the brand, improving the products, and developing new avenues of growth."

Click here to read the retailer's results announcement in full.