Next wary of tough times despite improved results

Next's chief executive, Simon Wolfson, has dashed any hope that trading conditions in the clothing sector had hit the bottom, as the fashion giant posted better-than-expected second-quarter results.

For the 13 weeks to 26 July, retail like-for-like sales fell 2.4 per cent at Next, which was better than most City analysts expected. However, Mr Wolfson said: "I think the economic risks are on the downside for the next six months. Our customers have significantly less to spend on clothing."

Asked if the retail sector was in recession, he said: "Yes, certainly on a like-for-like basis." Next said the 6 per cent fall in retail like-for-like sales for the first half of 2008 was "more indicative of the underlying trends", given the unusual weather last year. "We anticipated tough times and they have been as tough as we expected," said Mr Wolfson.

The Citi analyst Richard Edwards said: "The stronger-than-expected top line across the second quarter suggests that Next may have picked up some market share ahead of the sale period. With a deteriorating macro environment, we fear the worst is still to come with downside risk to our January 2009 and 2010 Next earnings forecasts."

Despite the downturn, Mr Wolfson vowed to press ahead with Next's investment programme. He said: "We are not cutting back on any of the areas we are investing in, such as the store refit programme. The most important thing going into a downturn is to manage stock in line with a realistic assess-ment of what sales will be." Next said stock levels heading into its ongoing summer sale were significantly down on last year.

Over the second quarter, Next grew sales at its directory business by 5.6 per cent. Next is also eyeing new international markets. Mr Wolfson said: "We continue to look at new countries to take our franchises."