Next sets pace with festive sales success

The UK’s second-biggest clothing retailer said performance was driven by its Next Directory online offer, where total sales surged 11.2 per cent year-on-year in the period between November 1 and December 24.

The retailer, which has a long-standing policy of not going on sale before Christmas, said it expected to report pre-tax profits of £611m to £625m for the year to the end of January. That was up from its previous guidance of £590m-£620m.

Next, which does not provide like-for-like sales figures, said total sales excluding VAT sales tax across its shops, website and catalogue increased by 3.9 per cent during the period, with sales up by the same percentage in the financial year to date.

Sales at its network of more than 500 stores in the UK and Ireland rose by 0.8 per cent in the run-up to Christmas. So far this financial year they are up 0.6 per cent.

The first of the listed retailers to report on festive trading said it has seen “no change” to the consumer climate, and its sales growth was in line with its forecast.

Traditional high street retailers are struggling as weak consumer spending and increasing online trade squeeze footfall, sales and profits. However, Next has fared well thanks to its strong online presence, new store openings, expansion into homewares and overseas markets.

“We think it is unlikely there will be any dramatic change in the consumer environment in the year ahead,” said the firm.

“Healthy employment numbers mean that there is little risk of a significant downturn.”

It added: “On balance, we expect the consumer environment to remain subdued but steady.

“We will continue to manage the business defensively in a difficult consumer environment.”

The company predicted sales growth of 1.5 per cent to four per cent in the year ahead, and expects profits to rise in line with sales.

“I think it is getting slowly better in that the difference between inflation and wages is narrowing and I think will probably continue to narrow,” chief executive Simon Wolfson said.

“But certainly for the rest of 2013 I still think real incomes will drop, albeit at probably a lower rate than they fell last year.”

Next said its sale has started well, with 8.2 per cent less stock than a year earlier. Stock levels have been “carefully controlled” and across the group it started the new year with less stock than a year ago.

Next’s profits were boosted by tight cost control and markdowns, which increased margins.

It plans to focus new store openings on the homewares sector, with another 250,000 square feet planned for 2013-14. Its plans for a Next Home store in Meadowhall, Sheffield, were rejected by councillors last year – a decision it has appealed.

“International and online will continue to grow and we will continue to open profitable new space,” said Mr Wolfson.

He added Next was not seeing any rise in the cost of its spring/summer stock, a lot of which has already been purchased.

“We can say that with some certainty there will be zero inflation in the price of spring/summer stock in like-for-like product,” said Mr Wolfson.

Shares in Next climbed 101p or 2.68 per cent to close at 3,873p. They have risen more than 35 per cent over the past year.

Richard Curr, head of dealing at Prime Markets, said: “Retail bellwether Next had it all to do as the first (listed) retailer to report on Christmas trading, and as on so many occasions before, it did not disappoint.

“Where an inline performance would have been quite good enough to kick off the all-important retailer January trading statements, Next actually upped guidance to the top end of expectations.

“Prime Markets see little on the horizon to stand in the way of the Next retailing juggernaut.”

Analysts at Investec Securities said it was a “good statement from a much-loved stock”.

“We remain long-term fans of Next’s strategy and management, but continue to feel these attractions are reflected in the current rating of the shares,” they added.

The retailer has been using surplus cash to buy up shares, thus improving earnings per share.

During the year it cancelled 7.5m shares bought for £241m. Next said it should generate about £250m of surplus cash next financial year, after capital investment, tax and dividends, which it plans to return to shareholders through buybacks – acquiring about four per cent of its shares at the current price.

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