Next brands an indelible imprint

THE INVESTMENT COLUMN
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The hot summer and weak consumer demand may have dented most retailers' hopes this year, but no one seems to have told Next. The retailer, whose shares languished at only 7p a few years ago, continues to show the rest of the high street the way forward with expanding profits and like-for- like sales increases most rivals would kill for.

Underlying profits were up 19 per cent to pounds 44m in the six months to July and sales have increased by nearly 16 per cent on selling area up only 4 per cent.

Next now makes more money from 300 stores than Sears makes from 3,000. The difference is that Next is successfully building a brand. Nurtured by Lord Wolfson, chairman, and David Jones, chief executive, Next is investing part of its gross margin in improving quality and value, using Marks & Spencer as its role model.

A measure of its success is that it was able to sell at full price for all but a couple of weeks of the period, when a genuine sale would have shifted the remaining stock in a few days.

It has thus avoided the costly mark-downs that have plagued so many.

Next's other advantage is that it is less exposed to the vagaries of high fashion. Nearly three-quarters of its sales are of classic garments, such as blazers and staple casualwear.

With a target market among 20-40-year- olds, it is not caught out by the whims of the fashion-conscious teenager.

Sales up a third at Next Directory show that mail order is also doing well.

Next is now dabbling overseas, though it is taking its time. It has had four stores in the US for 18 months, but has still not made up its mind about the market. It is looking to add a couple of outlets to its single branch in France, but is in no rush here, either.

With pounds 119m in the bank, Next is well placed to expand on foreign soil when it feels the time is right.

In the meantime a progressive dividend policy will continue, enhanced by the possibility of special dividends and share buy-backs.

Morgan Stanley is forecasting profits of pounds 125m for the full year. After a good run this year the shares have gone from a discount to the sector to a premium, with the forward rating standing at 17 on yesterday's closing price of 395p, up 3p. About right.

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