Next steps up online growth as sales surge

Overseas business 'better than anticipated' but high street stores treading water

The fashion retailer Next is to push ahead with expanding its online presence overseas after its internet and catalogue business delivered sales of more than £1bn for the first time.

Its 25-year old Next Directory was a key driver behind the high street chain posting a rise in annual profits last year. But Lord Wolfson, the chief executive, struck a cautious tone on consumer spending, saying this year "looks no less challenging".

Next, which has 536 stores, saw its pre-tax profits rise 5 per cent to £570.3m in the year to 28 January, on total turnover up 2 per cent to £3.51bn. Its performance reaffirms the fact that many large retailers are continuing to grow, despite the consumer downturn.

But it was the figures for Next Directory that caught the eye. Its online business delivered operating profit of £262.6m, on sales up by 16 per cent to £1.09bn.

Neil Saunders, managing director at the retail consultancy Conlumino, said: "In many ways, Next's figures are a microcosm of wider trends in the retail sector: sales through physical stores are under significant pressure, while online is continuing to show good growth."

Next Directory alone made more money last year than both John Lewis Partnership's eponymous department store chain and its Waitrose supermarkets, which had operating profits of £157.9m and £260.6m, respectively.

Lord Wolfson said: "I think we have done better in Directory than we anticipated, particularly our overseas business." Next, which delivers to 49 countries, had overseas online sales of £33m last year. It is targeting £50m in 2012-13, as it expands rapidly to 15 more countries. It will launch a Chinese language site this year and start online sales in the Middle East.

The success of Next Directory has reaffirmed Lord Wolfson's commitment to maintaining its substantial high street presence. He said: "We remain convinced that there is a continued place for fashion stores and that increasingly customers will see stores and online as part of a single service."

Its customers collected 20 per cent of their Next Directory orders through its stores, while 59 per cent of returns went via its high street outlets. But the shops found the going tougher last year. Retail sales fell by 1.4 per cent to £2.19bn, as the contribution from new stores failed to offset a decline in underlying sales.

The retailer has forecast that its retail sales will be flat to lower by 3 per cent in the first half of this year.

On consumer spending more generally, Lord Wolfson said he did not expect "things to get any worse", highlighting positive signs such as the lower inflation and a gradual rise in wages.

He said the temporary move in Wednesday's Budget to extend Sunday trading hours this summer would give the fashion chain a sales boost of up to £8m. The Chancellor, George Osborne, is to introduce legislation to "relax" restrictions on Sunday trading for eight weeks from 22 July for the 2012 Olympics and Paralympics.

"Particularly in November, December and early January the whole industry faces capacity constraints," he said. "As far as Next is concerned, I would be happy for it to be made permanent."

Next raised its dividend by 15 per cent to 90p, which will net Lord Wolfson a payout of £1.47m.

High street hit by fresh fall in sales

The high street returned to earth with a bump in February amid the biggest slump in sales since May last year, figures showed yesterday.

The 0.8 per cent fall — after two months of solid rises over the festive period — came as retailers called time on big price cuts, and rocketing petrol prices closed consumer wallets.

The slide in sales was broad based, although, bizarrely, fine arts dealers and antique shops were worst hit, the Office for National Statistics said. Petrol sales are growing at their slowest annual rate since December 2010 as drivers are squeezed by record fuel costs, it added.

Capital Economics warned the retail recovery is "already running out of steam".