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Next: retail sales rise 1.3%, prices set for 8% increase

Next posted a 1.3% increase in total retail sales for the 26 weeks to July 31 and the chain said its clothing retail prices will jump by as much as 8% next year.

Next said total sales were in line with expectations but that retail like-for-likes, which include the performance from the online division, were below the midpoint of the chain’s guidance, with a 1.7% rise, and were enhanced by a strong online performance. Retail like-for-like sales, excluding the performance of its Direct division, dropped 1.5% during the period. Directory sales increased 7.8%.

Price hikes for spring 11

Next said that increasing input cost prices and the forthcoming VAT rise in January will lead to a hike in clothing retail prices in spring 11, by an estimated 5% to 8%.

The chain said that a combination of higher cotton prices, production capacity tightening and a lower dollar costing rate would result in input cost inflation in the first half of 2011. Next added that it would aim to mitigate some of the effects of the inflationary conditions by developing new sources of supply and more rigorous negotiations in the supply chain.

‘Cooling in demand’

The retailer described the consumer mood as cautious and said that there had been a “noticeable cooling in retail demand in recent months”. It added that consumer spending would become more restrained in the second half of the year as spending cuts and tax rises take place.

Outlook

Next said total retail sales for the second half of the year would range between minus 1.5% to plus 1.5% - a like-for-like equivalent of between minus 1.5% and minus 4.5% - exclusive of VAT and sales from its Direct division. New space is expected to add 3% to sales. The chain highlighted that its reported sales for the rest of the year would continue to be 1.5% less than actual sales to shoppers as a result of the return of the VAT rate to 17.5% this year and that comparisons become increasingly difficult against last winter’s strong performance.

However, the retailer posted a more positive outlook on ecommerce with an improved online shopping service expected to increase sales by between 4% to 8%.

Next added that the end of season Sale had performed well, and said it expected group profit before tax to be in the range of £535m to £560m.

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