Next’s pre-tax profit fell 1.5% to £342.1m in the half year to July, following a challenging period of trading.
Total Next brand sales were up 3% to £1.9bn, compared with the same period last year. However, full price sales were down 0.3%.
The Next Directory catalogue performed “significantly better” than retail, mainly as a result of improved stock availability, enhanced website functionality and continued growth from Next Label and overseas.
Retail sales edged up 0.1% to £1.9bn thanks to the addition of new space. However, full price sales were down 3.2%.
Next said it held a much larger end-of-season Sale this summer, which included 27% more stock than last year – and this was weighted towards stores and online over the Next Directory. As a result, retail margin declined 1.8%.
Despite this, it is planning to increase net trading space by 350,000 sq ft this year, taking the total to 8 million sq ft – more than it forecast in March. Store numbers will remain broadly the same because it will close a number of smaller, less-profitable units.
“Our view is that, in a difficult trading environment, taking new space is one of the few ways to mitigate losses from negative like-for-like sales,” the company said, although it emphasised that any new space must be highly profitable.
Directory sales rose 7.1% to £821.2m. Next said efforts to improve stock availability, the launch of its new mobile site and the rollout of online marketing campaigns all had a positive impact.
However, it noted that the improvement in availability was mainly achieved by simply buying more stock, which contributed to the increase in markdown at the end of the season.
For the second half of the year, it has planned and delivered stock using a new stock control system, and so expects to offer the same improvements in availability without generating additional markdown.
Next trialled a smaller, softback version of its catalogue in the first half, which is now being rolled out. This has stemmed the decline in its printed materials.
Total group sales were up 2.6% to £1.96bn.
Mobile site and apps
Next rolled out its mobile website, m.next.co.uk, to all handheld devices during the first half and conversion rates rose from 4.9% to 5.7%.
However, the mobile site is more limited than the desktop site, focusing on search, select and ordering. Over the next 12 months, Next plans to deliver a catalogue browsing mode, better account management, an order-tracking service and better payment functionality.
In the first half of next year, it will launch a mobile site for overseas customers.
Apps still only account for 7% of Next Directory turnover. During the second half of this year, Next will launch an app for Android phones and tablets.
Next said sterling’s recent devaluation will not affect it until spring 2017.
It has made efficiencies in its supply chain, including developing new supply sources in Burma and Cambodia, which means cost prices on like-for-like garments is expected to rise by 5% at most.
The retailer is considering whether to increase retail selling prices by 5%. It estimates that this would result in a fall in unit sales of 5.5% and a fall in like-for-like sales value of between 0.5% and 1%.
“In the scheme of things, we think this drag on sales is manageable and less damaging than taking a significant hit to margin,” Next said.
Next is maintaining its full year sales guidance, but said it expects to have a clearer picture of trading conditions at the beginning of November, when it announces its third-quarter sales.
“As expected, it has been a challenging year so far, with economic and cyclical factors working against us, and it looks set to remain that way until mid-October at the earliest,” the firm concluded.
It expects group profit before tax to come in at £775m to £845m for the full year to January 2017.