Bullish Next underlines patchy recovery

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The Independent Online
The patchy nature of the retail recovery was underlined yesterday when Next, the fashion chain, announced a bullish set of trading figures the day after the Sears retail group unveiled a slump in profits and warned on tough high-street trading.

And the fight among the big supermarket chains heightened as Asda confirmed plans to spend pounds 300m opening a further six stores this year and six more next year in a move that will create more than 2,000 jobs.

But shares in two furniture groups fell when they issued profits warnings. Shares in World of Leather, the furniture group, fell 11 per cent after it warned that the absence of a "feel-good" factor was affecting sales. Shares in Airsprung Furniture closed 17 per cent down at 182p when it warned that the warm summer had affected sales and that profits in the six months to September would be "significantly below" those achieved last year.

Tony Shiret, stores analysts at brokers BZW, said: "Those with strong brands do well, those that don't, do badly. A good brand can be exploited in other ways. You only have to look at the food retailers who are going into home shopping and financial services."

Pre-tax profits at Next increased from pounds 37m to pounds 50m in the six months to July. The figures were boosted by a strong performance in the 302 shops and the Next Directory mail order catalogue which increased sales by a third and profits by 40 per cent.

David Jones, chief executive, said; "What we have been doing since 1991 is trying to build a brand that people feel comfortable with. When trade is difficult people are more inclined to shops with us."

Next has shrugged off the effects of a hot summer that affected many retailers. Like-for- like sales increased by about 11 per cent. August was slower, but sales in both the stores and the catalogue were still 10 per cent ahead in the seven weeks since the end of July compared with a 10 per cent decline at Sears in August.

The group has been helped by its relatively low exposure to the volatile high fashion market. Next says 70 per cent of its sales are of classic garments such as blazers. Julie Ramshaw, of Morgan Stanley, said: "They are getting the thirty-somethings back who used to shop at Next when they were twenty-somethings in the 1980s."

Next is adding a further warehouse as part of a pounds 30m development programme to give it greater capacity.

The company is continuing its experiment in the US, where it has four stores, but will not decide on future strategy there until after the Christmas trading season.

Investment Column, page 22