'Cautious' Next on track to reach profits targets

NEXT, Britain's second largest fashion retailer, remains on track to grow sales and profits this year, despite its fears of a post-election spending slowdown, writes Jennifer Hill.

The group has been encouraged by trading in the 13 weeks to 1 May, with high street sales up 2.8 per cent and its "Directory" mail-order arm trading comfortably ahead of earlier hopes with growth of 7.2 per cent. Like-for-like sales including online business rose by 2.2 per cent.

The high street stalwart said it remained "very cautious" about the trading outlook, but added that, with forecasts of a spending slowdown already taken into account, it still expected another year of sales and profits growth.

It said profits for the year to January were on course to be near the top end of current City forecasts of between 525 million and 565m.

The fashion and homewares chain warned that trading over the rest of the financial year would be hit by tougher year-earlier comparatives and the impact of government action to tackle the country's budget deficit.

Next said in a trading statement: "Whatever form this action takes, it is likely that it will act to restrain growth in consumer spending."

Seymour Pierce retail analyst Freddie George, who has a "buy" rating on the company's shares, said there was still potential for earnings upgrades despite Next's cautionary comments.

He added: "The company has a relatively strong balance sheet, has significant potential to grow internet sales overseas and has the directory business in the UK, which we believe has significant value."

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 last year as sales continued to surprise on the upside, thanks to improving consumer confidence and efforts to offset pricing pressures caused by the weak pound.