Next beats profit hopes and says it can take the living wage in its stride

The Next chief executive Lord Wolfson shrugged off a looming £27m-a-year bill from the new national living wage

Shares in the fashion chain rose 2 per cent as profit came in ahead of City expectations (Reuters)

The Next chief executive Lord Wolfson shrugged off a looming £27m-a-year bill from the new national living wage as the fashion giant’s interim profits once again impressed the Square Mile.

The boss of a chain that serves around 5 million customers a week said the company had already begun driving through productivity improvements before Chancellor George Osborne’s surprise Budget move to introduce a minimum £7.20-an-hour rate from April next year.

The cost of the move to Next will be £2m next year, but by 2020 it believes the figure could be an extra £27m a year on top of anticipated wage inflation. Next currently pays out £600m on wages – with a starter rate of £7.04 an hour. The total is expected to rise to £747m by 2020 as prices increase by 6 per cent in total over the next five years.

The Tory peer said the extra bill was “not a transformative amount” and added that the company had sharpened up productivity by employing fewer staff on longer contracts and allowing those who want to work longer to gain extra hours under an electronic “shift marketplace” system.

“Productivity is a focus not just for Next but for other retailers and the move to technology allows us to improve productivity in ways we couldn’t have been able to 10 years ago,” Lord Wolfson said.

“Large numbers of people on small contracts in theory gives you flexibility, but if you give them flexibility, they are likely to take up other jobs. So you don’t necessarily have the flexibility you think you have.”

Next, which lifted its full-year guidance in July, posted pre-tax profits of £347.1m for the six months to July, a rise of 7 per cent on last year and beating City hopes. The shares climbed 2 per cent, or 140p, to 7,815p as a result.

Lord Wolfson also played down worries such as the Chinese troubles that shook the markets. He said: “There’s nothing I can see in the UK that I can worry about. Things like devaluation in China actually help the supply chain.”

Richard Hunter, head of equities at Hargreaves Lansdown, said: “In an uncertain environment there are few pockets of dependability, but Next remains one such example.”