Next cheered as shoppers carry on spending

Record low interest rates and lower-than-expected rises in unemployment have encouraged many shoppers to keep spending.

However, the figures are flattering because they are in comparison with Christmas 2008, when the economy was in the depths of recession.

Next grew like-for-like sales by 3.2 per cent in the 22 weeks to December 24 in a "more stable than expected" consumer climate and now expects full-year profits of between 490m and 500m, which is higher than figures provided as guidance in November.

The group improved its ranges and gave more space to home furnishings which performed "particularly well".

Next said sales at stores open more than a year rose 1.6 per cent in the 22 weeks to December 24, above its second-half guidance.

Sales at its Next Directory home shopping business rose 6.8 per cent, ahead of a forecasted rise of 4 to 6 per cent.

But shares in the company, which has more than 500 stores, dipped following the update as markets also studied the company's uncertain outlook for 2010.

While consumers "are generally in a much better position than they were a year ago", Next said the year ahead may not be as positive because steps to sort out Britain's dire public finances could affect consumer confidence.

Simon Wolfson, the company's chief executive, said consumer spending would be influenced by tax rises which he believed would follow this year's General Election.

He added: "One way or another the Government's got to reduce spending or increase taxation over the next four years by a significant amount. My guess is that we'll see the hardest hit early"

Although Next was planning cautiously for 2010, the firm could put more stock into its stores if economic conditions were better than expected, he added.

"I didn't want people to think we'd locked ourselves into negative like-for-likes," he said.

"I think we've proven this year that in the event that we beat our budget we can chase stock into the business.

"It makes sense to budget conservatively and chase the stock rather than be optimistic and then ending up having to put the stock in the sale."

Mr Wolfson said he expected the firm to open about 300,000 square feet of new space in the year to the end of January 2011.

Mr Wolfson, a prominent supporter of the Conservative Party and co-chair of its economic competitiveness policy unit, would not be drawn on the possibility of him taking a Government job if the party won the General Election.

"Nobody's made any offers to me," he said.

Shares in Next have increased by 93 per cent over the last year.

Analysts will have a clearer picture of consumer behaviour by the end of the week, because a number of retailers are due to publish trading updates.

Marks & Spencer is today expected to return to like-for-like sales growth for the first time in more than two years when it posts its Christmas trading update.

The company is trading against easier comparisons than Christmas 2008, when it registered a 7.1 per cent fall in same-store sales at the height of the recession – its worst performance since 1999.

Tomorrow Sainsbury's will reveal how Christmas 2009 compared to the record trading of the previous year when it releases its third quarter fig- ures.

Britain is taking longer to emerge from recession than most major economies, partly due to its exposure to the financial services industry which lay at the heart of the down-turn.

However, recent manufacturing, mortgage and money supply figures have raised hopes that the economy could be on the road to recovery.

n The Grant Thornton Quoted Retail Companies Index, a review of listed retailers, found that a large proportion of retailers appear to be defying the worst effects of the recession by exhibiting positive sales growth in the last quarter of 2009.