Fashion giant Next has reported record profits but warned that the retail landscape has fundamentally changed.

Next posted a 9% increase in full-year pre-tax profits to £551m on sales ahead 1% to £3.46bn.

Chief executive Lord Wolfson said the performance reflected Next’s adaptation to “a new economic landscape”.

He 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 15 years.

“Next and the retail industry can still deliver very healthy returns for their shareholders, but we will need to think differently about how we manage and grow our businesses.

“New avenues of growth, innovative ways to control costs and careful management of the healthy cash flows that retailers tend to generate will become increasingly important.”

Sales at Next’s retail arm fell 2.3% in the year to £2.22bn and Directory sales advanced 7.1% to £935.5m, generating profits of £328.8m and £221.9m respectively.

Wolfson said that new sources of revenue, such as the growing chain of standalone home stores, made a positive impact, and that next Directory had grown strongly online.

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