Next cheers retail sector with bumper profits and talk of falling prices
Next said the prices it charges customers are falling this year, as the fashion and homeware retailer reported bumper profits and said the UK consumer backdrop was improving.
Simon Wolfson, the group’s chief executive, said that after a positive year of sales and profit growth in the year to January, it was “a long time since we started a year in a more positive frame of mind”.
“On the face of it, the consumer environment looks more benign than it has for a number of years, albeit there are some significant uncertainties,” he said. “It feels like we are now entering a new era.”
Profits were up by 5% to a slightly better than expected £918m as sales rose almost 6% to £5.8bn in the year to January. Wolfson said he expected profits to be about £960m this year and sales to rise by about 6%.
Next’s performance – which drove shares to a new record high – comes despite difficulties in the wider clothing market as shoppers reined in spending on discretionary items to cope with higher energy and food bills.
Some brands are struggling for survival with Ted Baker expected to appoint administrators this week and Superdry searching for new funds.
Wolfson said his positive outlook was partly down to wages now rising faster than clothing prices.
“Selling price inflation in our own products has reversed, mainly as a result of decreasing factory gate prices,” he said.
Wolfson added that Next had been able to sell more of its pricier, better-quality items as “there appears to be something of a shift back to investment dressing with customers buying somewhat fewer, slightly more expensive items.”
Next, which bought majority stakes in brands including Fatface, Cath Kidston and Reiss during the year, would continue to look for opportunities to invest in brands this year.
The company also plans to expand in the US, Middle East and Asia via new partnerships including a tie-up with US department store Nordstrom and new franchise and licensing deals in India.
after newsletter promotion
The push comes after Next’s sales overseas rose 17% during the year, largely thanks to a 52% increase in sales via third party online sites such as Zalando.
John Moore, senior investment manager at RBC Brewin Dolphin, said: “Next continues to deliver against a tough retail backdrop, with growing momentum on sales and cashflow management. The group’s strong balance sheet means Next is a beneficiary as other brands struggle in the current environment, and we have seen that play out in recent years with its acquisition of a range of well-known peers.”
Shares in Next were up by 5% on Thursday, making it the top riser on the FTSE 100.