Retail sector bellwether Next has a long track record of under-promising and over-delivery on financial performance, as illustrated yet again in its year-end results released yesterday.

Among the most resilient in an industry that has been rocked by one external shock after another in recent years, Next’s record annual profits of £870 million during the 12 months to the end of January outstripped even its own guidance that was lifted by £20m after better-than-expected sales during the festive season. All told, annual sales of £5.1 billion were 8.4 per cent higher than in the same period a year earlier.

That trend looks set to go into reverse, however, as the consumer battle against rampant inflation continues.

READ MORE: Next shares fall as retailer predicts 'difficult year' to come

Next chief executive Lord Simon Wolfson says “virtually every element” of the company’s supply chain is looking more benign, including pricing pressure. This was most notable in the areas of shipping costs and the price of goods coming out of the factory gates.

This gave rise to the welcome news that Next has scaled back its price inflation forecasts for the coming year. Prices in its shops will rise by an average of 7% in the spring/summer season ­– down from 8% previously forecast – and by 3% in the autumn and winter months, or half of what it had predicted as recently as January.

Yet how much this might bolster sales in the coming months is anybody’s guess. As Next said: “No one really knows how the continuing cost-of-living squeeze will affect consumers, and we do not know what effect lower selling price inflation will have in the second half.”

READ MORE: Grocery inflation hits new record high

But Next decided to take a shot at it by laying out forward guidance in which it predicted that pre-tax profits in the current financial year will drop back to £795m on the back of reduced sales. For the 12 months to January 2024, it reckons full-priced sales will drop by 1.5%.

Despite the habitually cagey approach to forecasting at Next, investors have taken fright and the company’s shares are trading lower today. Russell Pointon, director of consumer at Edison Group, said Next may very well not be crying wolf this time around.

“While historically the clothing brand has tended towards conservatism in its forward guidance and subsequently over-delivered, Next has suggested such out-performance might not be possible in the coming year,” Mr Pointon noted.