Next profits up but it warns of price rises

FASHION retailer Next unveiled a rise in its half-year profits and dividend yesterday but warned of price rises next year because of soaring costs and the rise in VAT.

Its robust trading performance came as rival chain French Connection turned a 5.4 million loss last year into a first-half profit of 200,000 and said it was reinstating its interim divi at 0.5p.

Lord Wolfson, Next's chief executive, unveiling a 15 per cent increase in pre-tax profits from 185.5m to 213.3m, said the group was suffering significant cost price pressures.

He cited a 45 per cent leap in the price of cotton in the past year, which was pushing up fabric prices, and wage cost inflation in some of its overseas operations.

Wolfson said: "Input costs combined with the impending rise in VAT (to 20 per cent in January 2011] will make price rises inevitable in the spring of next year."

He said Next would be able to mitigate some pricing pressures through "alternative sourcing, robust negotiation and some product engineering", but that the company believed selling prices for clothes would probably have to rise "in the region of 5 to 8 per cent".

Next's revenues in the six months to end-July rose 5 per cent to 1.59 billion, with a 1.5 per cent fall in like-for-like retail sales offset by a 7.8 per cent rise in sales at its Directory home shopping business.

The group's interim dividend rises by 6p to 25p. Next's shares, which have risen 28 per cent since this time last year, outperforming a 4 per cent fall in the UK general retailers index, closed up 6.7 per cent or 136p at 2,176p.