In the 12 months ending January 31, 2008, Next made a pre-tax profit of £498.1m (€631.6m), compared with £478.4m (€607.2m) a year earlier.
Annual revenues rose by 1.4% to £3.33bn (€4.22bn), from £3.28bn (€4.29bn).
The retailer, which has more than 480 stores in Britain and Ireland said trading conditions will continue to be difficult as increased costs and rising taxes put pressure on its customers.
“We can see no reason why there should be any recovery in consumer spending during the year ahead,” Next said in a statement yesterday.
The company intends to expand this year with the development of a wholly owned business in Central Europe and Scandinavia.
It said these stores will be operated in essentially the same way as those in the Republic of Ireland.
Chief executive Simon Wolfson has added new stores and refurbished existing ones to gain customers as shoppers have less money to spend on clothes.
Next has also cut expenses by reducing warehouses and securing better buying terms from suppliers.
“Even though full-year profits were in line with expectations, this is largely due to cost control rather than an increase in sales,” said Richard Hunter, head of British equities at Hargreaves Lansdown Stockbrokers in London.
Next also said sales may stop growing at its home shopping unit in the first half of this year and will drop further in its stores as higher living costs erode incomes.
The company said the internet continues to be very important to the development of the directory and now accounts for almost 60% of its orders.
It said it has developed a Euro website and are now selling directly to Ireland and Spain.
Spending on garments is scaling back. French Connection Group last week reported a fourth year of sliding sales and Debenhams also reported a 0.7% drop in first-half same-store sales and said that it expects the market to remain challenging.
Bucking the trend however is Italian clothing retailer Benetton which reported a 16% rise in its 2007 net profit and forecast a 7% rise this year.