Next nudges up profit forecast

Next said stronger sales in late September and early October made up for an unusually quiet start to August. Photograph: David Moir/Reuters
Next nudged its profit forecast for this year higher after stronger sales in recent weeks, adding to optimism that the UK retail sector is bouncing back from a weak summer.

Britain’s second-biggest clothing retailer said stronger sales in late September and early October made up for an unusually quiet start to August. Next sales rose by a better-than-expected 2.7% in the 13 weeks to 27 October, its third quarter, with its shops 1.1% ahead. Directory (online and catalogue) sales climbed 5.6%, a sharp slowdown from 13.3% in the first half, suggesting that the benefit from improved delivery options is fading. The 2.7% figure compares with sales growth of 4.5% in the first half.

Panmure Gordon analyst Jean Roche said: “Bears will point to the slowdown in Directory sales and bulls to the impressive pickup in retail sales. We are big fans of this blue blood multichannel retailer.”

Analysts said it was a “quarter of two halves,” with sales down in August as many people stayed at home to watch the London Olympics. But improving confidence and colder weather prompting shoppers to buy knitwear and warmer jackets led to sales bouncing back in the autumn. Caroline Gulliver at Espirito Santo said: “This 10% swing in sales growth through the quarter correlates with good recent sales data from BDO, John Lewis and Debenhams and bodes well for other retailers yet to report, such as M&S.”

A CBI survey showed on Monday that shoppers spent far more on the high street than expected this month as inflation eased, adding to other evidence that the economy is recovering from recession. This has boosted retailers’ confidence ahead of the key Christmas period.

The Next Directory business, new store openings and a move into homewares and overseas markets have helped Next buck the gloom at home. Other retailers have found it tough to keep going at a time of squeezed incomes, job fears and government austerity measures, which have led to belt-tightening among consumers.

The company, which has more than 500 stores in the UK and Ireland and almost 200 shops abroad, said sales remain volatile, but narrowed its full-year sales growth forecast to between 3% and 4.5%. The narrower range and greater certainty on costs for the rest of the year enabled it to raise its pre-tax profit forecast slightly to £590m-£620m, from £575m-£620m.

James McGregor, director of the retail consultants Retail Remedy, said: “Next has set itself a very high bar – for a fashion retailer to deliver an annual profit of £600m in the current environment is truly impressive. The company has no magic formula, just a tried and tested multiplatform approach. It perfected its holy trinity of online, directory and physical stores long before its rivals had even begun to look beyond physical stores. It understands its customers well, listens to them and reacts to their needs. The result is a loyal and trusting customer base.”