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[January 04, 2013]
Financial: Next reaps the online dividend as bumper sales for Christmas point to pounds 625m profit: Retailer prospers after keeping tight rein on costs: Consumer confidence has not improved - Wolfson
(Guardian (UK) Via Acquire Media NewsEdge) Next has emerged as one of the winners from an "internet" Christmas as bumper online sales and fewer clothing markdowns boosted profits over the crucial trading period.
The UK's second largest clothing retailer has pencilled in annual profits of between pounds 611m and pounds 625m after a tight rein on costs and fewer markdowns on its Boxing Day sale rack boosted its coffers. The narrowed range put the firm at the top end of City expectations, sending its shares to the top of the FTSE 100 leader board.
Kicking off the Christmas retail reporting season for listed companies, Next boss Simon Wolfson said it had prospered over the festive season despite no discernible pick-up in consumer confidence, as Britons spent "slightly less than last year".
"The economics don't suddenly change on 1 December," said Wolfson, who pointed to the fall in real incomes experienced by households in 2012. "We anticipated and, in the end, experienced no change in consumer behaviour in the last quarter from the previous three." Like high street rival John Lewis, which on Wednesday reported record Christmas trading thanks to stellar online growth, the performance of Next's home shopping arm, Directory, was in a different league to its stores. Directory sales for November and December were 11% higher than in 2011, while its shops eked out growth of 0.8%.
Conlumino analyst Joseph Robinson, said: "Next's performance underlines the trend of this festive season: namely that online has been the principal driver of growth and is paying dividends for those players that have invested in their online offer. Next is a very well-run business with a tight grip on costs, discounting and stock management." Unlike rivals, Next does not report a like-for-like sales figure, which strips out the effect of new store openings. But Investec analyst Bethany Hocking estimated sales at its shops were down 1% on an underlying basis. "All in all a good statement from a much-loved stock," said Hocking.
The shares closed up more than 2% at pounds 38.73. Next said savings in areas such as warehousing, distribution and store operations had buoyed up profitability. "There were things we did slightly better than expected on but it was not a dramatic change, we are in our [profits] range but at the top end," said Wolfson.
The retailer, which has a longstanding policy of never having a sale before 26 December, said the amount of stock going into its end of season sale was down 8.2% on last year, meaning it sold more clothing and homewares at full price. "We don't pay dividends on market share . . . the thing that matters is full price sales," said Wolfson, who estimated the amount of pre-Christmas discounting on the high street was lower than last year.
With Britain facing a possible triple-dip recession, many retailers have found the going tough as consumers fret over job insecurity and the squeeze on living standards. Wolfson predicted the consumer environment would remain "subdued but steady", adding: "For the rest of 2013 I still think real incomes will drop, albeit at probably a lower rate than they fell last year." Unlike supermarkets, who are grappling with food price inflation linked to last year's poor harvest, Wolfson said it was not seeing a rise in the cost of its spring/summer range, a lot of which has already been bought.
"So we can say that with some certainty there will be zero inflation in the price of spring/summer stock in like-for-like product," he said.
Captions: Next did not hold a sale until Boxing Day and even then it offered fewer markdowns. Its boss Simon Wolfson said: 'The thing that matters is full price sales' (c) 2013 Guardian Newspapers Limited.
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