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Next warns of “tough year ahead” as sales rise

Next chief executive Lord Simon Wolfson has warned that the year ahead “may well be the toughest we have faced since 2008” as he announced total sales rose by 3% for the year to January 2016, while profit before tax increased 5%.

Next autumn 15

Next autumn 15

The retailer’s total sales reached £4.1bn and profit before tax was £821.3m on an underlying basis.

Next added 21 new stores during the year including eight resites, and closed 20 stores including 11 resites, ending the period with 540 stores and 7.6m sq ft of space. It plans to add around 275,000 sq ft of space in the year ahead and a further 350,000 sq ft in 2017/18.

Its Directory sales rose by 7.7% to £1.7bn for the year, while operating profit increased by 7.5% to £405.2m.

The Directory business suffered from poor stock availability during the second half of the year as shoppers switched to buying more stock from mid-season brochures and less from the large seasonal catalogues.

As a result, it has increased the Directory’s overall stock holding for spring 16 and for autumn 16 it has rewritten its stock ordering systems to allow more accurate allocation of budget to buy the items that appear in the smaller mid-season brochures.

The mainstream retailer has also identified four major changes to the way its customers use its Directory including a shift away from desktops to tablets and phones, the desire for large catalogues, customers using credit facilities and deliveries to home.

It recently launched a mobile site for Android phones and will roll out an iPhone version over the next few months, as well as updates to its iPad app. Next also plans to spend a further £8m on online advertising and campaigns in the UK and overseas as it “rationalises” the distribution of its brochures.

The changing face of Next Directory

The changing face of Next Directory

The changing face of Next Directory

It will also start personalising its website from autumn 16.

The average number of credit customers fell by 4% in the year and Lord Wolfson said “maintaining credit customer numbers remains our toughest challenge”.

Next reduced its minimum payments and lowered interest rates by 2% over the last year and plans to further improve the way it targets and markets its credit facilities. However, it warned that the credit customer base will decline by a further 5% in the year ahead and will take a number of years to stabilise.

In its third party branded business Label, Next added 20 major new brands in the year to January and sales grew by 25%, although some of this was driven by markdown sales. It plans to add a further seven new brands for the year ahead but declined to give names.

The group experienced cost increases of £39m for the year to January 2016, with £24m of this associated with cost of living awards and other wage costs. However it made cost savings of £46m, driven by £17m from net margin on product and £13m on property savings.

In the year ahead it expects cost increases of £55m, with £23m coming from wage increases. However it plans to offset this with cost savings and other income streams of £59m.

In terms of product, Next said it is focusing on direct sourcing of “better” fabric, yarns and embellishment for its autumn 16 ranges and plans to buy fabric and yarns before buyers know what garments they will be used for.

It will also encourage its buying and merchandise teams to make decisions outside of its formal selection meetings for short-lead time product, which marks a “big cultural change for Next”, said Lord Wolfson.

“In addition to our generally more cautious outlook for the economy, we also believe that there may be a cyclical move away from spending on clothing back into areas that suffered most during the credit crunch,” he said.

“We now expect Next Brand full price sales growth for the full year to be between 1-4% with a mid-point of 1.5%. At this stage in the year there is inevitably a high degree of uncertainty and we recognise that there is an upside risk to the numbers if we have a colder winter, the fourth quarter of last year being unusually warm. However at this stage we think it is best to prepare ourselves for what could be a difficult year.”

Next expects group profit before tax to be between £784m and £858m for the year ended January 2017.

Readers' comments (1)

  • Not as tough as it will be for BHS or M&S?

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