Next: Retail giant notches up surge in half-year sales
The retail giant Next has notched up a surge in half-year profits, but warned UK sales will be impacted by “anaemic” economic growth and a faltering jobs market.
The fashion and homewares group reported a 13.8 per cent rise in underlying pre-tax profits to £515m for the six months to the end of July as total full-price sales lifted 10.9 per cent.
But it cautioned that UK sales growth will pull back sharply, to 1.9 per cent in the final six months of its financial year, against growth of 7.6 per cent in the first half.
Chief executive Lord Simon Wolfson said: “The medium to long-term outlook for the UK economy does not look favourable.
“To be clear, we do not believe the UK economy is approaching a cliff edge.
“At best we expect anaemic growth,’’ he added.
It said the group’s UK performance was also boosted in the first six months by better than expected summer weather and disruption at rival Marks & Spencer after its online trading was hit by a major cyber attack.
With the absence of these in the coming months and combined with a weakening economy and dampened consumer spending, it expects sales growth to slow sharply.
The group said the Government’s move to increase National Insurance Contributions (NICs) and the minimum wage was leading to a steep drop in vacancies and making it harder for people to find work, especially young workers.
This will hit consumer spending power, it said.
However, it stuck to its recently upgraded full-year profit guidance for group sales to rise by 7.5 per cent and profits to increase by 9.3 per cent to £1.11bn.
Richard Hunter, Head of Markets at interactive investor, commented: “There has been limited change since a detailed July update, with Next reiterating its traditionally cautious outlook for the months ahead.
"Ironically, the lack of an almost assumed profit upgrade as is usually the case may have taken some of the shine from what has nonetheless been another striking period of growth, with the share price taking a rare beating in opening trades.”
He added: “The strength of any caution is warranted as the second half is unlikely to repeat the tailwinds of the first.
"Favourable weather and the additional business gained from the Marks & Spencer cyber incident, the effects of National Insurance washing through (net margin declined by 0.5 per cent to 8.9 per cent as a result) and strong comparatives will combine for a lower result.”
Mr Hunter said the numbers underlined the group’s unparalleled understanding of the market in which it operates and its ability to capitalise on new opportunities, such as the potential opportunities in the international business.
He added: “The group believes that international tastes in clothing are beginning to converge, not least of which is due to the increasing visual power, appeal and presence not just of the internet, but also the rise of streaming services which are now increasingly used by younger audiences.
"As such, the group is making strides into new territories with a hybrid approach.”
Mr Hunter continued: "For practical reasons, far-flung markets such as the US and Asia have proven difficult in terms of delivery, and Next is therefore seeking to establish a number of high-profile third-party partnerships to enter those regions.”