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Diminishing discounts boost profits for multiples

Next and White Stuff benefited from an increase in full-price sales this year, with the retailers posting a surge in profits as a result.

Next upped its profit forecast by £10m this week, following a rise in full-price sales over the first half of the year. In the 26 weeks to July 27, total sales rose 2.3%, with full-price sales increasing thanks to a smaller end-of-season Sale.

Prior to its Sale, which kicked off on July 13, Next’s revenues were 3.7% up on last year. The chain had 20% less stock to shift in the Sale than last year. Next said the combined effect had added £10m to first-half profits, and as a result it has increased its group pre-tax profit forecast to between £635m and £675m, from £615m to £665m.

White Stuff profits also rose after a “significant increase” in full-price trading. Total sales grew 11.4% to £99.5m in the year to April 27, while EBITDA increased 52.6% to £12.7m.

White Stuff chief executive Jeremy Seigal declined to quantify how much discounting had been reduced by, but said the practice would continue to decline over the current financial year.

Last week, Fat Face also revealed a 9% increase in turnover to £179m for the 53 weeks to June 2, with EBITDA up 29% to £31.2m. The retailer cut the number of weeks it was on Sale from 48 weeks out of 52 to a maximum of 15.

Fat Face chief executive Anthony Thompson told Drapers: “Coming off the discounting ‘drug’ does take time. You have to take a deep breath and keep your eye on the medium to long term, especially as there will be points where you are facing tough comparables.”

But he argued that consumers had responded positively to the move: “They know they aren’t going to buy something this week and see it at a discount next week.”

However, figures published by the British Retail Consortium (BRC) this week confirmed that discounting remains widespread.

Clothing deflation increased for the third month in a row, accelerating to 9.7% during July compared with the same time last year, as a result of widespread discounting.

Womenswear, kidswear and footwear were the main categories to see downward pressure on prices, although menswear and babywear also suffered. Accessories experienced a slight slowdown in the deflation rate. In the retail sector overall, deflation rose to 0.5% – the highest in six-and-a-half years.

The BRC blamed discounting for the deflationary figures, which “remains at an elevated level as retailers continue to drive sales”.

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