Next sales take a dive in face of competition on the high street

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The Independent Online

Next admitted yesterday it was reeling from the combined blows of a resurgent Marks & Spencer and a stronger value sector as it unveiled a collapse in sales since the start of the year.

Simon Wolfson, the chief executive of the fashion group, warned investors to expect falling sales for the rest of 2006, extending his pessimistic outlook. His comments rattled the retail sector, sending shares in Next 64p lower to 1,662p and wiping 13p off M&S's stock to 551p.

In a trading update that overshadowed a strong set of full-year results, Next said like-for-like sales in the seven weeks to 18 March fell 8.9 per cent. A later Easter and Mother's Day compared with last year probably cost the company 2 per cent of lost sales, it estimated.

The group, which has been opening new stores at a rapid rate, outlined a raft of self-help measures, including revamping its biggest stores, introducing new ranges more quickly and expanding into new products such as electricals and gold jewellery. It also plans to launch a sub-brand targeted at cash-strapped shoppers that it will sell in its special clearance stores.

Mr Wolfson said the group was suffering from general shopper apathy rather than any internal problems with its ranges. "We think the biggest single effect on sales is the retail environment in which we are all operating. We don't expect that to change dramatically over the course of this year even if interest rates come down in August or September."

At worst, he expects underlying sales to fall by 6 per cent during the course of the year; at best, by 3 per cent. This is worse than the guidance he gave before. "There are lots of threats. We see both [Marks & Spencer and the value players] as competitive threats. The whole sector has upped its game over the past five years," Mr Wolfson added.

The outlook for this year contrasted with a strong 12 months during which pre-tax profits rose 6 per cent to £449m. Underlying sales during the year fell 2.9 per cent but the impact on operating profits was cushioned by better sourcing and tight cost control. Despite store costs climbing by £20m, the operating margin slipped by only 20 basis points.

Its Directory arm grew profits by 18.5 per cent to £106m on sales up 13.7 per cent to £685m. It does 40 per cent of its business on the internet, up from 30 per cent two years ago.

For the first time Next will sell non-Next branded products via a new electricals website. Mr Wolfson said the group was looking at ways to develop the business over the next three to five years. It also intends to step up its franchise operations, starting with outlets in Turkey and Russia.