Shoppers pass a branch of Next retail in London, Britain, September 15, 2016.

British clothing retailer Next (NXT.L) is "extremely cautious" about prospects for the year ahead, it said on Thursday, as it reported a 3.8 percent fall in annual profit.

The company, which issued a profit warning in January, said it made underlying earnings before tax of 790.2 million pounds in the year to January 2017.

That compared with Next’s latest guidance of 785-799 million pounds, analysts’ average forecast of 793 million pounds and 821.3 million pounds in 2015-16.

"The clothing sector faces three potential threats: a sectoral shift away from spending on clothing, price inflation as a result of sterling’s devaluation and potentially weaker growth in real incomes in the wider economy," Next said.

"These headwinds are likely to be felt most acutely in our retail business, as sales continue to migrate away from the high street to online shopping."

Next did, however, maintain the guidance it issued in its January trading statement for the 2017-18 year – full price sales, at constant currency, in a range of down 4.5 percent to up 1.5 percent and pretax profit of 680-780 million pounds.

Long Britain’s most successful clothing store chain, Next has faltered over the last two years. Its shares, which have slumped 41 percent over the last year, closed on Wednesday at 3,885 pence, valuing the business at 5.71 billion pounds.

The company has also highlighted inflationary pressures on its cost base, including the government mandated National Living Wage, business rates, apprenticeship levy and energy taxes.

Analysts are concerned too about a declining number of credit customers at Next’s online Directory business as rivals step up investment and eat into its once leading position.

(Reporting by James Davey; Editing by Jane Merriman and Mark Potter)

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