Next warns of modest growth as it reveals sales setback

NEXT’S love affair with the stock market was jolted yesterday as the fashion retailer’s boss admitted the eurozone crisis had unnerved consumers, and that sales and profits growth next year would only be modest.

Lord Wolfson, group chief executive, unveiling a 2.7 per cent fall in Next’s store sales between August and 24 December, also said price cutting by rivals had been “more than I’ve ever seen before”. The clothing retailer has a long‑standing policy of not discounting before Christmas.

Next’s shares, which rose 37 per cent last year compared with a 5.5 per cent slide in the FTSE 100 index, yesterday closed down more than 3 per cent, or 85p, at 2,656p.

Wolfson, a Tory peer, said: “My sense is the underlying economic situation is slightly worse than it was in September and that the only thing that’s really changed is the situation in Europe. The [eurozone] crisis got a lot worse in late November, through December, and I think the headlines were definitely worrying people in that time.”

The company’s strong online performance in the Next Directory business outweighed the fall in total store revenues, a near‑17 per cent sales jump giving an overall 3.1 per cent rise in group sales.

Next said it would still meet City expectations for the financial year to end‑January 2012. However, City retail analysts said the company’s performance in November and December was particularly disappointing given the soft, snow‑impacted comparatives in the same period of 2010. “A number of factors have subdued sales in the final quarter and it is hard to judge to what extent warm winter weather and higher levels of competitor discounting masked the deeper, longer lasting, economic effects,” it said.

The uncertain backdrop led it to budget only for “modest growth” in the next financial year “with profit before tax only slightly up on this year”.

The group cited continuing difficulties in the eurozone hitting business confidence, and growing UK joblessness, as “negatives” that would hold back growth. More positively, Next said it expected to generate about £200 million of surplus cash in the coming year, which it intended to return to investors through share buy-backs.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “Next’s own admission of disappointment is a setback to its hitherto robust growth story.”

However, Hunter said: “On the upside, the Directory business remains the jewel in the crown, and Next’s enhanced cash generation is likely to lead to further enhancements to shareholder value in the form of share buybacks. In addition, higher sales do not necessarily translate to higher profits, so the fact that the company has been able to maintain operating margins may yet play into its hands.”

The retailer is due to post annual results on 22 March.