Next profits up after recovery spurs spending
NEXT yesterday reported strong half-year profits, fuelled by the economic recovery, rising house prices and higher household spending.
Total sales were 10.3 per cent stronger than for the same period last year and pre-tax profits rose 19.3 per cent to £324.2m, compared with £271.8m a year earlier.
But the fashion and home retailer said it would be hard to repeat the latest success, as sales had been lifted by factors outside its control.
“An improving economy, low interest rates, increasing availability of credit, less general discounting on the high street and much better summer weather have, we believe, all contributed to an improvement in our sales performance,” Next stated.
“In addition, an improved housing market has helped our home business. We remain mindful that some of these factors are likely to be less favourable next year and this year’s fine summer weather could present tough comparatives next year when interest rates are also expected to rise.”
As a result, its forecast sales growth for the third quarter is 10 per cent, falling to four per cent in the three months leading up to Christmas.
Next Directory – the retailer’s internet and catalogue business – saw sales grow 16.2 per cent to £694.3m from £597.6m a year earlier. Next Retail – its high street offering, with 500 stores in Britain and Ireland and about 200 overseas – increased sales 7.5 per cent to £1.08bn from £1bn.
PROFILE: LORD WOLFSON
A man who offers £250,000 economic prizes for safely dismantling the euro and building visionary garden cities would seem unlikely to be preoccupied with the minutiae of the latest British fashions.
So when Next chief executive Simon Wolfson – or Baron Wolfson of Aspley Guise, to give the full title – presented the retailer’s latest round of storming results yesterday, he didn’t dwell on the importance of the kimono (which boosted New Look so much this summer) or how capes and metallics are having a moment.
No. The Conservative life peer was straight down to business – a macro view of the mid-market business he has led so successfully for 13 years and its place in changing Britain.
Scotland, inevitably, was the first topic for his consideration.
“Next operationally will continue to trade in Scotland whatever happens,” he told reporters. “What I am concerned about is the wider economy. If Scotland has a new currency and that currency devalues that will push up the price of all goods,” he said, before adding that tax issues and job risks were other possible concerns.
The difficulties of starting Next’s online business in China, the risky move of introducing higher-priced ranges and the “own goal” of retailers who have created ugly sheds for out-of-town stores were all points he touched on.
“We can be more ambitious and build something we’re proud of,” he said, animated as he talked of Romford’s brick and glass store.
A stranger entering the room might not have been sure what sort of products or business Lord Wolfson is involved with. But if he seems indifferent to fashion, he is most definitely in touch with the exact demographic of his customers – the fans who last Christmas helped Next overtake M&S in the profit stakes. His staff, too, must surely think kindly of a boss who has waived his bonus for the past two years and divided it among them.
“The economy feels a much better place to be than it has been for the last five to six years,” he said, before acknowledging the effect that the looming interest rate rise will have on Next’s “top of the middle-range” customers, with their children and mortgages.
“A rates rise would moderate growth but wouldn’t derail a recovery,” he said.
“But it’s an important factor that people should be aware of for next year.”