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Next profits soar 18%

Next has reported an 18% increase in group pre-tax profit to £505m in the full year to January 30 in what chairman John Barton said was “an extraordinary year”.

Next reported revenue increased to £3.4bn, and net debt reduced to £400m. In the retail arm, sales were up 3.5%, however, this figure included a 53rd week of sales and the 52-week comparison would have been 2%.

Full price like-for-like sales for the 52-week period were 0.5% ahead. Including its multichannel sales, the like-for-like figure would have been up 1.7%. Retail profit increased 12.2% and net margin increased by 1.1%.

The retailer said effective stock control meant 16% less stock went into the end of season Sales.

Chief executive Simon Wolfson said: “During the year we have made good progress in improving and developing our product ranges, expanding our store portfolio, refitting our stores, developing our online business and controlling costs. We believe the Next brand has emerged from recession in better shape than it entered, and is well placed to make progress in what we anticipate will be another challenging year.”

Product

Next said that it had improved the fashion content of its ranges and had increased the speed at which it incorporates new trends and the depth in which it buys them. It has reduced supplierlead times and said it had further to go in developing quick responde suppliers which a focus on European partners and by air-freight from the Far East.

In the coming year, the retailer willreduce the lead time of cataloguer production and use the internet to allow customers to purchase online late additions to the retail range.

Directory and internet

In its Directory business, sales finished up 7% or 5% on a 52-week basis. It said the internet continues to be important to the development of the Directory and now accounts for 70% of orders. Directory profit was up 16.4%.
Wolfson said Next has changed its approach to international trading and is moving its focus away from wholly owned international stores to direct sales over the internet.

He said the internet allows Next to serve a customer base which is dispersed over a large area without the need to take on fixed assets and stock holdings in numerous locations.  He said: “Whilst in any one town or city there may not be enough Next customers to justify the investment in a store, there are enough customers in a whole country to justify the investment required for us to trade online”.

Next serves 35 overseas countries via its website. Wolfson said: “To date our focus has been on establishing reliable overseas operations and we have not as yet spent significant time or money on marketing.  In the year ahead we will test and develop marketing methods overseas, with trials having just started in the USA.  We anticipate that over the next twelve months our international website turnover will be circa £7m, generating a profit of £1.4m.”

Stores

Next has 14 owned stores in central Europe, 5 in northern Europe and 4 in China. Wolfson said the retailer does not anticipate any new stores in northern Europe and “will keep the existing sites under review”. It will continue to trade its central European stores and expect to expand slowly.

International sales in franchise stores were down 7% on a like-for-like basis.  

In the year, Next increased trading space by 275,000 sq ft, increasing its portfolio to 517 stores. The retailer expects to open a total of 340,000 sq ft in the year ahead.

In the year it spent £26m refitting stores and £7m extending stores. This year it will spend a further £18m on refits, £6m on new sports and shoe departments and £17m on extensions. It expects to maintain capital investment of £20m per annum on stores.

Sports departments

During the year it also opened five trial sports departments in Next stores. These combined non-Next branded sportswear such as Adidas and Puma alongside its own sports brand NX Sport. It said the trial was a success and it plans to open a further 17 sports departments in the first half of the year, and more in the second half.

Outlook

Wolfson said the outlook for the year ahead is “hard to predict”. He said: “The main concern is the size of the Government deficit.  In whichever way a future Government balances its books, the results will be uncomfortable for the consumer.  The best outcome will be if the Government is able to reduce the deficit through productivity gains, although this will not be without impact on consumer spending, as inevitably it will result in the loss of some public sector jobs.”

He said Next is budgeting for like-for-like sales in the first half in the region of down 2.5% to 0.5%. He said: “We are reluctant to give full year profit guidance at this early stage.”

Readers' comments (1)

  • Next has definitely improved the quality of its product and its speed in getting it in to stores. Unsurprisingly the master of managing expecations has done a good job. Marc Bolland should be looking with interest (and maybe some concern) at these results as he joins Marks & Spencer in May. M&S could learn a thing or two about knowing your customer.

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