Online sales blow for Next sees shares fall

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NEXT, Britain’s second-biggest clothing retailer, reported a slowdown in sales growth at its online and catalogue business, whose stellar performance has helped it to avoid the worst of a downturn in consumer spending.

Shares in the firm, up 40 per cent over the last year, slipped 1.1 per cent yesterday as the slower growth at the Next Directory business offset news overall sales had recovered from a slow start to the third quarter, allowing the firm to edge up the bottom end of guidance for the full year.

Many retailers are finding the going tough as consumers hold back spending in the face of inflation, meagre wage increases, and austerity measures.

Retail sales picked up more than forecast in October, a survey showed on Tuesday. However, one published yesterday said UK consumer confidence fell to its lowest in six months in October, highlighting the fragility of Britain’s recovery from recession.

Next has generally defied the gloom, helped by its strong online offer, a constant stream of new store openings and diversification into homewares and overseas markets.

Third-quarter retail sales rose 1.1 per cent, having been up 0.2 per cent in the first half, while Next Directory sales rose 5.6 per cent, having increased 13.3 per cent in the first half.

“Given that Directory had seen double-digit sales growth for six consecutive quarters, we expect this to slightly disappoint,” said Investec analyst Bethany Hocking.

Caroline Gulliver, analyst at Espirito Santo investment bank, said the “dramatic slowdown” in Directory sales growth, from 13.3 per cent in the first half and 16.4 per cent last year, “shows that the benefit from improved delivery options – the 9pm cut-off for next day delivery – is now waning”.

Next attributed the slowdown to the annualisation of delivery improvements made last year and chief executive Lord Wolfson said investors should not be alarmed.

“The view we’ve always taken is that what counts is the overall number, and although Directory is worse than in the second quarter, retail has actually got better,” he said.

Next, which trades from over 500 stores in the UK and Ireland and 200 stores in over 30 countries overseas, said its total sales rose 2.7 per cent in the 13 weeks to October 27, taking year-to-date growth to 3.8 per cent.

That compares with first half growth of 4.5 per cent and previous guidance for full-year growth of 2-4.5 per cent.

With Next expecting its fourth quarter sales to increase in line with the year-to-date rise, it narrowed its full-year sales guidance to growth of 3.0-4.5 per cent.

Last month Next had said sales in August and early September had been disappointing.

Lord Wolfson blamed the slow start to the quarter on unhelpful weather and the distraction of the Olympics rather than any further deterioration in the lot of the UK consumer.

He said sales were stronger in late September and early October, though trading was “volatile” and in late October had been distorted by a later half-term school holiday.

“The economy is subdued but not in trouble and the same could be said of the consumer,” added Lord Wolfson, a prominent supporter of the Conservative Party.

“There’s a little bit less fear of unemployment around but at the end of the day growth in real income is still marginally negative, people are being careful,” he said.

The firm is now guiding to a full-year pre-tax profit of £590m- £620m, from £575m-£620m previously, representing growth of 3.5-8.7 per cent on 2011-12.

Next forecast growth in earnings per share of 10-15 per cent after an expected share buyback of £200m.

Last month Next had said sales in August and early September had been disappointing during what had been an unusually quiet period.

Next has generally defied the gloom, helped by its strong online offer, a constant stream of new store openings and diversification into homewares and overseas markets.

Panmure Gordon analyst Philip Dorgan said: “We see today’s statement as further evidence of a more benign environment for clothing retailers and our increasingly positive view of near term influences on UK household post-tax discretionary income.”

Setting the standards

THE Next brand was created in 1982.

It set a new precedent in retail by presenting own branded womenswear in boutique-style shops.

Next introduced menswear in 1984, home interiors in 1985 and childrenswear in 1987.

The group launched the Next Directory in 1988, setting a new standard in home shopping.

It brought the directory to the internet in 1999 and introduced ‘multi-channel’ retailing to the masses, allowing them to shop in store, by phone or online, with next day delivery standard for most orders since 2001.

Some 80 per cent of its home shopping business is now transacted online.

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