Sales boost raises Next profits

Retailer Next reported an 18 per cent hike in profits today after seeing a turnaround in sales following four years of declines.

The group posted pre-tax profits of £505 million in the 12 months to January, up on the £428.8 million seen a year earlier.

Next thanked better-than-feared consumer spending and efforts to improve product ranges for the improvement, as like-for-like sales returned to positive territory with a 0.5 per cent rise.

But chief executive Simon Wolfson joined fellow retailers in expressing concern over 2010, saying the group is "extremely cautious" on the sales outlook.

Mr Wolfson said 2010 is "hard to predict" ahead of the general election and potential for tax rises as the Government seeks to bring down national debt.

The fashion and homewares chain is budgeting for same store sales ranging from 2.5 per cent down to 0.5 per cent up in the first six months, but stressed it hopes to be able to grow profits by around £30 million even if annual sales fall 2 per cent.

Mr Wolfson added: "A worse scenario for the consumer would be a rise in taxation - direct taxes will reduce consumer spending, indirect taxes are likely to be inflationary.

"So the outlook for the economy - and therefore for retail sales - remains dependent on policy decisions and their timing and, as yet, we have little certainty as to either."

Next enjoyed a resurgent performance in 2009 after it refocused the business to aggressively back new products and trends.

It made a series of profit upgrades throughout the year as sales continued to surprise on the upside, thanks also to improving consumer confidence and efforts to offset pricing pressures caused by the weak pound.

Next said its homewares business is now the fastest growing area of the business after opening another nine stand-alone Next Home stores, with plans for 12 more in the year ahead.

But the group's overseas operation was more badly impacted by the global recession, with like-for-like sales down 7 per cent across franchise stores.

It is refocusing efforts away from physical stores internationally to concentrate instead on its internet offering.

The company already trades online in 35 countries outside the UK and can deliver to the US in two business days for 10 dollars, which is being reduced to five dollars.

Retail analyst Matthew McEachran at Singer Capital Markets said Next's profits were ahead of expectations and added the prospect for profits even in a low sales growth environment is encouraging.

"Overall this is an excellent set of results and guidance," he added.