Next fashions good growth in Christmas period, but stays cautious on outlook

FASHION retailer Next achieved better Christmas sales than was expected, but warned that earnings could be flat this year as the government looks set to raise taxes to cut public debt, writes Rosemary Gallagher.

Next, which runs more than 500 shops in the UK and Ireland as well as a home shopping business, said yesterday that cold weather and strong demand for homewares had boosted the firm's sales in the run-up to Christmas.

The firm said pre-tax profit would rise to between 490 million-500m for the year to 31 January, up from 429m the previous year and above the analysts' consensus forecast of 472m.

However, Next remained cautious about prospects for 2010, saying it was planning for "similar" profits. The firm warned that Westminster's attempts to reduce the deficit by lifting taxes and cutting public sector jobs could curb consumer spending.

Simon Wolfson, chief executive of Next, said: "One way or another the government's got to reduce spending or increase taxation over the next four years by a significant amount."

He said he expected the firm to open about 300,000 square feet of new space in the year to the end of January 2011.

Singer analyst Matthew McEachran noted Next's track record of caution on future profit growth and kept his forecast for 2010-11 profits to grow to 509m.

Next said sales at stores open for more than a year increased 1.6 per cent in the 22 weeks to 24 December, above its second-half guidance of flat to down 3 per cent. Sales at its Next Directory home shopping arm rose 6.8 per cent, ahead of guidance of up 4-6 per cent.

Shares in Next have increased by 93 per cent over the last year, beating the general retail index by 14 per cent.

They closed at 2,103p yesterday, down 1.68 per cent.