Next defies high street downturn

NEXT has posted another year of record profits despite “the perfect economic storm” lashing through the retail sector, with online growth overcoming anaemic store sales at Britain’s second-largest fashion chain.

The group, which has 536 stores in the UK and Ireland, boosted its full-year dividend by a hefty 15 per cent to 90p on the back of the strong performance. However, Next warned that the outlook for retailing in the UK remained gloomy amid sluggish job creation and tight credit conditions.

“In addition, any worsening in the Eurozone sovereign debt crisis would further undermine UK employment and put additional pressure on banks’ balance sheets,” Simon Wolfson wrote in his chief executive’s review. “So this possibility remains a significant downside risk to the UK consumer.

“On balance we believe that these on-going constraints outweigh much of the upside potential for 2012, and accordingly we are budgeting conservatively.”

Wolfson’s downbeat assessment came as official figures showed UK retail sales suffering their biggest monthly fall in nine months during February.

Data from the Office for National Statistics revealed a 0.8 per cent slump in retail sales volumes, giving an annual rise of just 1 per cent. Both figures were well below economists’ forecasts.

The ONS also sharply downgraded its figures for January, with the previous growth figure of 0.9 per cent revised to 0.3 per cent after the inclusion of late data from smaller stores which failed to maintain their former momentum.

Against this backdrop, Next has been singled out as one of the few bright spots in an otherwise bleak retail environment.

“Next has been an outstanding performer over the last year and has risen over the last quarter by 13 per cent despite the slightly disappointing trading over Christmas,” Seymour Peirce’s Freddie George said in a note to investors.

George added that although “a lot of the good news is already priced into the stock”, the company still has ample opportunity to open new space and develop its online offering in the UK and abroad.

Despite increasing its floor space by 400,000sq ft last year, sales within Next stores fell 1.4 per cent to £2.19 billion during the 12 months to the end of January. Operating profit within the division dropped by 1.6 per cent to £324m, which the group described as “in line” with its expectations.

The decline was more than offset by a 16.4 per cent surge in sales through the directory division, which allows shoppers to purchase their clothing online. Directory made an operating profit of £263m on total sales of £1.09bn.

Adding in growth from Next’s international division – which covers 164 stores operating mainly under franchise in 30 countries – the group boosted total revenues by 1.5 per cent to £3.5bn. Pre-tax profits were 6.7 per cent higher at £579.5m.

Despite the sluggish performance of its stores, Next plans to add a further 300,000sq ft of floor space in the coming year. The group says its stores and online service are a symbiotic offering, with customers increasingly using shops to collect and return merchandise purchased over the internet.

The expansion in floor space is expected to include at least two new stores featuring both a fashion and home shop. Next opened the first of these new concept stores in Shoreham in August, which has so far proven “extremely successful”.