Rivals" discounting takes toll on Next A solid performance from Next's online directory business offset a "slightly disappointing" fall in sales at its retail division, as heavy discounting from competitors and warmer winter weather took their toll on the clothing chain. Next attributed the 2.7 per cent slide in retail sales in the five months to December 24 to the "continuing credit squeeze on businesses and consumers" and the impact of the eurozone crisis on confidence. The decline in sales at the FTSE 100 group's roughly 500 UK and Ireland retail outlets came in spite of last year's comparative period being adversely affected by heavy snowfall, which kept consumers away from its stores. Furthermore, with expansions and new stores adding roughly 4 per cent to the group's retail sales over the five-month period, the 2.7 per cent fall equates to a slip in like-for-like sales of nearly 7 per cent. "In spite of a good final week before Christmas, November and December sales were disappointing given that snow adversely impacted sales in 2010," Next said. A number of factors have subdued sales in the final quarter and it is hard to judge to what extent warm winter weather and higher levels of competitor discounting masked the deeper, longer lasting, economic effects. The figures were rosier at Next Directory, the online division, where sales excluding VAT rose by 16.9 per cent as consumers increasingly migrate to the internet. After wading through murky trading conditions during 2011, including a poor start to the festive season, UK retailers received a boost in the post-Christmas sales as aggressive promotions lured cash-strapped shoppers through their doors. However, the heavy discounting is likely to have come at the cost of margins for many retailers, although Next on Wednesday said that it had steered clear of this strategy. "We did not discount our products in the run-up to Christmas and maintained operating margins," it said. However, it narrowed its full-year pre-tax profit for the second time in two months to between £558m-£572m. Previous forecasts had been as high as £590m. Total sales of Next brand items rose by 3.1 per cent in the period, in line with the full year guidance range given in November of between 2.5-4 per cent. Next shares, which have risen by more than on-third over the past 12 months, fell 4 per cent in early London trading to £26.32, valuing the group's equity at £4.65bn. "The trading statement is relatively gloomy and management expects only a slight increase in pre-tax profits in full-year 2013," said Freddie George of Seymour Pierce. However, Next will continue with its share buyback programme - £200m planned in 2013 - and we believe the company still has good opportunities to open new space and develop its online offer in the UK and the Directory overseas.