Next to bag bigger profits than forecast

Published on Thursday 3 January 2008 09:28

NEXT, the fashion retailer, said today that it was expecting its full-year profits to be "slightly ahead" of current market expectations despite tough times on the high street.

The optimism comes despite a 3.2 per cent dip in like-for-like sales over the five months to December 24, as the company stuck to its policy of not slashing prices in the run-up to Christmas.

The company is also maintaining an "extremely cautious" outlook for 2008 due to "increasing demands" on consumers' finances.

Chief executive Simon Wolfson said: "Many will experience year-on-year increases in mortgage charges for much of the coming year as a result of favourable fixed-rate mortgage terms expiring."

The slide in like-for-like sales – which was an improvement on its spring/summer performance but was worse than the 2.9 per cent decline seen in the first 14 weeks of the second half – was largely in line with City expectations, given the chain is half way through a multi-million pound store refurbishment programme.

Next said sales from its Directory catalogue business, which has more than two million active customers, had offset a weaker performance from its high street stores, rising 2.2 per cent in the period.

That was higher than the 1.2 per cent increase the group reported for Directory in its last update in November.

Total Next Retail sales were down 0.3 per cent in the period although combined Next Retail and Directory sales were up 0.3 per cent compared with the same period a year ago. Next, which in total trades from around 470 outlets, said today that it is forecasting annual operating profits will be up by between four and six per cent over its current trading year.

"We anticipate that full-year profits for the group will be slightly ahead of market expectations with profit before tax in the region of 492 million-502m," Mr Wolfson said.

Next had been expected to report pre-tax profit of around 489.2m according to the average of 24 analysts polled by Reuters Estimates, up from 478.4m last year.

"Whilst trading has been difficult the financial performance has been good as a result of excellent cost control and careful management of our balance sheet," Mr Wolfson added.

Looking ahead, Mr Wolfson said: "We will continue to take on profitable new space in the UK, expand overseas and grow our online business through Next Directory. However we are not forecasting a return to like-for-like growth in the UK in 2008 for Next Retail."

And commenting on its post-Christmas sale so far, he added: "Clearance in the sale has been in line with our forecasts."

Next's same-store sales have been sliding for more than two years as rivals , such as a resurgent Marks & Spencer, snatch customers back.

Before its release, analysts at Morgan Stanley had described Next's update as one of the "most critical" in the company's history as it would mark the start of a new sales-led period for the firm which had spent around 10m on advertising and marketing over 2007.