Next boosts profits forecast again

Sep 17 2009 by Iain Laing, The Journal

HIGH street fashion chain Next has upped its annual profits forecast for the third time in five months as it thanked better ranges and a welcome improvement in consumer confidence.

The group posted a 6.9% increase in interim pre-tax profits to £185.5m after a better-than-expected performance in the six months to July and expects continuing margin improvements to help full-year profits come in close to last year’s £429m.

But Next said that while comparable sales declines had been easing – down by an underlying 1.2% in the half year – they were set to remain in negative territory through to spring/summer 2010.

There was some good news for shoppers too, as Next said it would not need to pass on the price rises it initially feared as efforts to offset the weaker pound paid off.

It said the VAT cut had helped it maintain stable prices so far for customers, while it had been driving costs down with tough negotiations on stock prices and freight costs for the autumn/winter range.

The chain’s half-year figures were helped by general stock and cost control efforts, better early summer weather as well as a “slight” improvement in the consumer environment.

The spending slump had not been as bad as feared, according to the group.

“The consumer recession has been less extreme than many forecasters were predicting,” said Next chief executive Simon Wolfson.

“Some assumed that a cataclysm in the financial markets would lead to a similar crisis in consumer markets - this has not been the case. It’s been a recession not armageddon.”

But it saw little change in the consumer environment throughout the second half and was forecasting a “conservative“ like-for-like retail sales drop of 3.5% to 6.5% and for directory sales of up to 2% growth.

The final six months’ sales would not have the 2% to 3% weather boost of the first half, although profit margins were set to provide a fillip to overall results.

Mr Wolfson added a note of caution over today’s profit upgrade as he warned that “much depends on our sales performance in the critical final quarter”.

The group said it was “taking greater fashion risk“ and seeking early adoption of trends, while it has also been keeping tighter stock controls – leaving it with much less to shift at cheaper sale prices.

The firm is likewise expanding, increasing its stores to 515 in the first half and plans to open 11 home stand-alone stores in the financial year, having already launched three since January.