Next saw its share value slip by 5.85 per cent in morning trading on the FTSE 100 after the retailer forecast a drop in like-for-like sales over the year.
Group profit before tax for the year ended January 2008 rose 4.1 per cent to £498 million on revenues of £3.33 billion.
Like-for-like sales at the group's stores fell 3.2 per cent while profits for the unit remained almost static with a one per cent increase to £319.9 million.
However, the Next Directory improved profits by 14.3 per cent to £164.4 million, mainly on an improvement in margins.
The retailer said stricter consumer credit vetting had limited customer growth in its catalogue unit, but had led to a significant decrease in bad debt.
Despite improved profits and margins for the year, Next was cautious on its outlook and predicted a drop in retail like-for-likes of between four and seven per cent for the first half.
Simon Wolfson, chief executive, said: "We can see no reason why there should be any recovery in consumer spending during the year ahead.
"Recent base rate cuts will do little to reduce the overall burden of mortgage repayments as they will be partially offset by the expiry of fixed rate mortgages which were set at lower rates than those prevailing today.
"This combined with increases in fuel, tax and other essential household costs mean that it will be at least twelve months before the consumer has a stable year on year cost base."
Next said it would be expanding into overseas markets while improving its range going forward, to protect sales in an increasingly difficult trading environment.
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