Next chief executive Lord Simon Wolfson has issued a cautiously optimistic outlook on trading prospects, forecasting that there would be no double dip recession or “meltdown in consumer spending” at the retailer’s half-year results today.
Wolfson said in a results statement this morning, at which Next reported a 15% hike in profits to £213m for the half year to July: “Next does not expect a double dip recession nor do we anticipate a meltdown in consumer spending, not least because overall employment levels are holding steady. However, we are expecting very little in the way of growth in total consumer spending for the foreseeable future.”
“Price rises are likely to moderate demand to some extent, but we think the effect is unlikely to be dramatic.” Next chief executive Lord Simon Wolfson
He added that Government cutbacks would not be so large as to “derail the economy” but would be enough to “subdue any potential growth in consumer spending” and pointed out that consumer spending was also unlikely to be driven by growth in consumer credit because shoppers were focused on saving money and were unable to borrow as much as previously.
Wolfson has previously been more cautious on the economic outlook, saying at the retailer’s last trading statement in August, there had been a noticeable “cooling down” in retail spending, which sent retail stocks tumbling.
He went on to say that while prices would rise by between 5% and 8% for spring 11, because of increased cotton prices and input costs, Next was not unduly worried by the prospect.
He said: “We will be able to mitigate some pricing pressure through alternative sourcing, robust negotiation and some product engineering…Price rises are likely to moderate demand to some extent, but we think the effect is unlikely to be dramatic.”
Wolfson went on to outline that there were still opportunities for growth, particularly through new space expansion and said that like-for-like sales would no longer be a “sensible” way to measure performance. Next expects to add 336,000sq ft of new trading space this year and will continue its strategy of relocating or extending stores in existing locations, as well as opening Next Home standalones.
He said: “…the outlook is balanced, not good, but not very bad either. We will have to adapt to a new type of consumer environment, one in which like-for-like sales growth is likely to be low for some time and top line growth will need to come from other opportunities. We believe it is sensible to view this environment as the new normal.”
Half-year sales were up 5% to £1.58bn over the period. Like-for-like sales fell 1.5%, within guidance.
Retail sales excluding VAT were up 2.2% for the six-month period. This figure was boosted by 0.9% because of a reporting difference, which meant the first half started a week later than the previous year.
Profit growth outstripped sales partly because of strong margin management. For its store ranges it achieved gross margin rose 0.4% while for its Next Directory ranges, it achieved gross margin improved 1.2%.
Next said in a statement that it had been particularly encouraged by its performance on kidswear and that it was more confident “than for some time” about the fashion content of its womenswear ranges. “Most of the key trends are represented” for autumn, it added.
It said: “Going forward, there is more we can do to maximise the potential of best selling lines, with more colourways and greater depth of buy on these items.”
Next also owns young fashion brand Lipsy, which achieved a trading profit of £1.1m over the period. Next said that it expected Lipsy to report a full-year profit of around £3m. It plans to open a further 16 Lipsy stores between now and the year end, taking the Lipsy portfolio to 29 shops.