Home comforts for Next as the shops go quiet

It is thought that shoppers, bemused by the changeable weather, put off clothes shopping in order to watch the Olympics on TV but splashed out on homeware items to make their surroundings more enjoyable.

Next said August and September had been “unusually quiet” with the Olympics persuading shoppers to stay indoors to watch the action rather than hit the high street.

Next said the womenswear market was the most subdued in the period while homewares performed well in August and September.

Last week a retail survey said underlying sales fell in August as the London Olympics failed to provide the hoped for boost to demand.

Next, which has around 540 stores, said it is on course to meet full-year profits of between £575m and £620m.

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

The company, which is the UK’s second biggest clothing retailer behind Marks & Spencer, reported a 10.2 per cent rise in first half pre-tax profits to £251m.

That compares with analyst forecasts of £234m to £254m and reflects a 4.8 per cent rise in revenues to £1.64bn.

Last month Next raised its guidance for 2012-13 pre-tax profits to £575m to £620m, equating to growth of 0.8 to 8.7 per cent on 2011-12.

It forecast total sales growth in 2012-13 of two to 4.5 per cent and said it expected earnings per share to grow six per cent more than the growth in pre-tax profits.

Next chief executive Lord Simon Wolfson said the retail sector and wider economy is subdued and will not see a return to growth for “some time to come”.

Matthew McEachran, retail analyst at Singer Capital, said: “Management indicates that trading so far in August and September has been disappointing during what has been an unusually quiet period, some of which we put down to the Olympics.

“Over the last three months Next slightly outperformed the sector, but this is showing signs of faltering,” he added.

Lord Wolfson warned that the biggest barrier to growth is the lengthy planning permission process, which has prevented the company from opening new space. Opening new space is part of Next’s strategy, alongside growing its website Next Directory, but progress has been slower than expected in the current year.

The group expects to add about 250,000 sq ft of trading space, net of closures, in the current year.

James McGregor, director of retail consultancy Retail Remedy, said: “Few of its rivals have the strength and depth in sales channels that Next does. Its Directory range complements rather than apes the lines in the physical stores.

“The Directory has performed exceptionally well, with its profits surging by more than a fifth in a year.

“Next pioneered the multi-channel approach that its high street rivals once sneered at, but are now scrambling to copy.”

Next said that retail sales were slightly ahead of plan in the half year, with sales excluding VAT up 0.2 per cent on last year and new space adding 3.7 per cent.

The Next Directory website saw a 13.3 per cent increase – eight per cent in the UK – with its new ‘Offers Tab’, the online equivalent of a clearance store selling the previous season’s stock, adding 2.4 per cent to UK sales.

The website’s active customers increased year-on-year by 11.7 per cent to 3.3m.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “It is a sign of the times that the market makes no allowances for disappointment, particularly in the retail arena, and Next has fallen foul by quoting disappointing trading in August and early September, without necessarily quantifying the slowdown.

“This is another set of solid numbers, with extremely strong gains among the key metrics of revenue, profits, and earnings per share.

“There is a continuation of the progressive dividend policy, whilst the seemingly unassailable growth of the Directory business is, again, a key contributor.”

Next is raising its interim dividend by 12.7 per cent to 31p and expects to increase the full year amount in line with growth in underlying earnings per share.

The company’s international franchise partners, which operate 160 Next stores in 31 countries, helped push international revenues up by 13 per cent to £37.9m.

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