Profits up, but Next chief warns of tough times ahead

Shares closed down 4 per cent at £73.15

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The Independent Online

Next shareholders took flight yesterday as the chief executive of the high street fashion chain, Simon Wolfson, warned that the next 12 months would be tougher than the year just gone.

Shares closed down 4 per cent at £73.15 as the Tory peer said he was “very cautious” especially in the first half of the year as the company faces tough comparisons with a barnstorming spring/summer season last year.

Lord Wolfson said: “We’re always more cautious than most – it is better to be overly cautious rather than create an unachievable prospect.”

Despite the warnings, Next put in a strong performance with sales up 7.2 per cent this year to £4bn and pre-tax profits rose 12.5 per cent to £782.2m. However, Lord Wolfson said next year sales are likely to grow by a maximum of just 5.5 per cent.

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Its online and catalogue directory business was particularly strong, up sales up 12.1 per cent to £1.54bn, while the retail business put in a 4.8 per cent rise to £2.35bn.

The profit rise would have been higher, but Next issued a rare profit warning last year due to the unseasonably warm weather in September and October, which hit the entire high street.

It meant more garments ended up on sale, although Lord Wolfson said it was helped by a usually strong spring and summer period.

He said: “This time last year the weather was on our side and we got all our ranges right. Normally there will be parts we’re not happy with, like this year when there have been some parts that haven’t worked.  It’s very difficult for a fashion company to get all the ranges right all of the time.”

The Tory peer declined to give a prediction for the upcoming election, but said he felt the economy had started to turn and it was being felt by shoppers on the high street.

He said: “The big important change in the economy is that real wages have grown, so if things don’t go right for us this year we won’t be able to blame the economy.”

Lord Wolfson said he expected sales to be between 0 per cent and 3.5 per cent for the first half of the year, due to tough comparisons last year, and up 3.5 per cent and 7.5 per cent in the second half, meaning full year sales should grow between 1.5 per cent and 5.5 per cent.

The company will continue paying out a special dividend, until the share price falls below £68.27, although Lord Wolfson insisted this was not necessarily how much the company thought the shares should be worth.

Analysts were divided over the results, with some calling it disappointing that the recent strong growth would not continue. However, others pointed out although comparisons will be tough in the spring and summer, they would be up against easier comparisons in the second half of the year.

Next has outperformed its rivals in recent years and has a particularly impressive sales-to-profit ratio. Sales were £4bn with pre-tax profits of £782.2m. By comparison, its closest rival Marks & Spencer managed sales of £10.3bn with pre-tax profits of just £622.9m last year.