The chief executive of Next offered a boost to embattled UK consumers yesterday, predicting that there would be no further increases in its clothing prices for spring 2012, as cotton inflation and manufacturing capacity constraints in the Far East ease.
Lord Wolfson of Aspley Guise also said he thought the recent doom and gloom in the retail sector had been"exaggerated", as the fashion and homewares giant posted a resilient set of first-half results.
Total sales at Next rose by 3.2 per cent over the 26 weeks to 30 July, which was towards the upper end of Cityexpectations, although the retailer's performance was boosted by new stores and a surge in revenues at its home-shopping Directory business.
Asked if Next had outperformed the market, Lord Wolfson said: "I would have thought so because the whole market would not be growing at 3 per cent."
Next said it expected the 8 per cent rise in the average selling price of its clothing over the 26 weeks to continue into the second half of its financial year. But Lord Wolfson said he thought those price rises would "disappear", on a like-for-like basis in the first quarter of 2012 due to a sharp reduction in cotton prices, fewer capacity constraints on factories in the Far East, and the annualising of the VAT increase.
He said: "It is primarily cotton but we are not experiencing the samecapacity constraints that we were at the back end of last year and early this year when the factories were full."
His comments offer some hope to consumers who have been hit bystubbornly high inflation, notably from soaring petrol and food prices, at a time of Government spending cuts.
Citing these factors and "stagnant employment", Lord Wolfson said that while "consumers have less to spend on discretionary purchases, the thing that has been holding back the clothing sector has been the recent cost-price inflation".
Over the half-year, Next's retail sales in its physical stores slipped by 1.7 per cent. However, on a like-for-like basis, Next's sales were lower by 3.4 per cent once the positive impact of new space is excluded.
Next's star performer was its home shopping Directory business – of which online accounts for about 80 per cent. Sales at Next's home-shopping unit surged by 15.1 per cent over the half year, although the retailer said this figure was "somewhat flattered" by an increased allocation of stock on sale. Full-price Directory sales rose by 13.3 per cent.
Sam Hart, an analyst at Charles Stanley, said: "We think Next can continue to make steady progress. Years ofexperience in home shopping through the Directory means the group already has the infrastructure in place to benefit from structural growth in online shopping. Cash generation is strong, the balance sheet solid and management best in class."
Next has said that it expects pre-tax profits to be between £527m and £577m this financial year.Reuse content