Next reports 12% jump in annual profits

Thursday 20 March 2014 14.32
Next said its sales, excluding VAT, rose 5.4% to £3.74 billion in the year to the end of January
Next said its sales, excluding VAT, rose 5.4% to £3.74 billion in the year to the end of January

Fashion chain Next toasted a "great year" for the group today as a £695m profits haul put it on course to overtake rival Marks & Spencer for the first time in its history.

The milestone performance comes after impressive Christmas trading, which helped full-year sales across its Next Directory catalogue and online division leap 12.4% higher while its stores notched up growth of 1.7%.

The firm trades from over 500 stores in Britain and Ireland and almost 200 stores in more than 30 countries. It has 29 outlets in Ireland.

Underlying pre-tax profits were 11.8% higher on the previous year and came after Next upped its profit guidance for the second time in just over two months following the better than expected festive period, when it left many competitors in the shade.

It is now firmly set to make more money than high street stalwart M&S for the first time since it launched in 1982, with M&S predicted to see underlying annual pre-tax profits fall to around £628m.

Next chairman John Barton said that the year to January 2014 "was a great year for Next."

The group is expecting further profits growth over the year ahead of between 5% and 11%, which would take its profits as high as £770m.

It expects sales growth of between 4% and 8% for Next branded sales over the current year.

But the group added a note of caution over the outlook. 

"The consumer economy has steadily improved over the course of the last year. This modest improvement looks set to continue. However, conditions are likely to remain far from buoyant and there are real risks to the sustainability of the current recovery," it said. 

M&S and a raft of clothing retailers resorted to hefty pre-Christmas discounting, which damaged profit margins.

But Next stood firm on its long-held policy of not discounting before Christmas and said its annual stock of clearance items was 15% lower than a year earlier, while full-price sales grew by 2.9%.

It also hailed its fashion team's move to be "braver in buying into new trends" and efforts to alter ranges to reflect a growing trend for consumers to buy closer to the point at which they need the clothing.

The group is boosting the availability of cold weather clothing in January, February and March and warm weather clothing in August and September, moving from a two season buying cycle to a four season cycle.

Next added that its burgeoning Home division has been helped by Britain's housing market recovery, particularly over the last six months.

Home sales now account for 18% of total turnover and the group aims to continue growing the division, with new large out-of-town Home stores set to account for nearly a third of all additional space planned for 2014.

Chief executive Lord Wolfson said the group was budgeting conservatively for sales growth over the current year as it saw the Christmas performance being a hard act to follow.

"In the year ahead we expect the fourth quarter to provide tough comparatives and it will be hard to beat. Accordingly we are budgeting very cautiously for the final quarter," he said. 

Marks & Spencer loses clothing market share 

Meanwhile, Marks & Spencer lost market share over the last three months, market data showed today, reversing a small gain late last year that was heralded by its chief executive as a sign his recovery plan was working.
              
Data from research group Kantar Worldpanelshowed M&S' share of the UK fashion market declined 0.2% in the 24 weeks to February 16 and was down 0.4% in the latter 12 weeks of the period.
              
The data showed M&S's share of the key womenswear market contracted 0.2% over the 24 weeks and 0.5% over the latter 12 weeks.
              
The loss of share will likely up the pressure on CEO Marc Bolland, who has presided over 10 quarters in a row of declining underlying sales in M&S's general merchandise division, which includes clothing.