Next ups annual profits forecast

Click to follow
The Independent Online

High street fashion chain Next upped its annual profits forecast for the third time in five months today as it thanked better ranges and a welcome improvement in consumer confidence.

The group posted a 6.9 per cent hike in interim pre-tax profits to £185.5 million after a better-than-expected performance in the six months to July and expects continuing margin improvements to help full-year profits come in close to last year's £429 million.

But Next said that while comparable sales declines had been easing - down by an underlying 1.2 per cent in the half year - they were set to remain in negative territory through to spring/summer 2010.



There was some good news for shoppers too, as Next said it would not need to pass on the price rises it initially feared as efforts to offset the weaker pound paid off.

It said the VAT cut had helped it maintain stable prices so far for customers, while it had been driving costs down with tough negotiations on stock prices and freight costs for the autumn/winter range.

The chain's half-year figures were helped by general stock and cost control efforts, better early summer weather as well as a "slight" improvement in the consumer environment.

The spending slump had not been as bad as feared, according to the group.

"The consumer recession has been less extreme than many forecasters were predicting," said Next chief executive Simon Wolfson.

"Some assumed that a cataclysm in the financial markets would lead to a similar crisis in consumer markets - this has not been the case. It's been a recession not Armageddon."

But it saw little change in the consumer environment throughout the second half and was forecasting a "conservative" like-for-like retail sales drop of 3.5 per cent to 6.5 per cent and for directory sales of up to 2 per cent growth.

The final six months' sales would not have the 2 per cent to 3 per cent weather boost of the first half, although profit margins were set to provide a fillip to overall results.



Mr Wolfson added a note of caution over today's profit upgrade as he warned that "much depends on our sales performance in the critical final quarter".

Next has seen a marked turnaround in performance over the past six months as it has upped its game to combat the threat of recession and rival retailers.

It had at one stage expected a sales slump of up to 9 per cent in the first half of the year, but has been helping the business through a combination of better product and cost savings.

The group said it was "taking greater fashion risk" and seeking early adoption of trends, while it has also been keeping tighter stock controls - leaving it with much less to shift at cheaper sale prices.

The firm is likewise expanding, increasing its stores to 515 in the first half and plans to open 11 home stand-alone stores in the financial year, having already launched three since January.

However, the impending reversion of the VAT reduction, which will rise back up to 17.5 per cent in the new year, will present a challenge for prices and profit margins as will competition from rivals.

John Lewis this week upped the ante in its fashion offering, with a new-look website and launch of a revamped in-store fashion department design.

David Keens, finance boss at Next, said: "We have got lots of competitors out there and it's a very competitive market, as we're all fighting for that same share.

"But with today's numbers we have shown resilience in this economic climate."

Shares rose 3 per cent on news of the profit upgrade.

Retail analysts at Singer Capital Markets said the half-year results were "outstanding".

Comments