More good news for UK plc today, as both Morrisons and Next upgraded their profit forecasts on the back of some strong recent trading. In the case of Morrisons, which has raised its target by £70m, this isn’t a huge surprise – it’s had a storming recession. But with Next, a real high street laggard in recent years, also raising its full-year earnings forecast by £30m, it’s clear that things are looking up on the high street. It’s amazing what a bit of sunshine will do. But will it last?
Morrisons first: the UK’s fourth biggest supermarket continued its resurgence by telling the City it would make £50m more than expected in the six months to August. Not only is it continuing to woo customers away from its rivals, but they’re also spending more with every visit – and just for good measure, it also thinks its store modernisation plan will save a further £20m, boosting profits from £670m to £740m. This was even better than analysts were expecting, and pushed its share price up a very healthy 8%. (There’s only downside for Morrisons: CEO Marc Bolland is doing so well that he’s now being linked with the M&S job…)
Next has also been enjoying the summer sunshine: having spent the last few months spouting gloom and doom about the state of the market, CEO Simon Wolfson said today that he expects profits to be £15m higher than expected in the first half of the year. Admittedly like-for-like sales were down 1.9%, but this wasn’t as bad as expected, and it’s clearly done a good job of protecting its margins.
As usual, the Next boss was cautious about the second half of the year, warning that rising unemployment and swine flu (getting that excuse in early) might impact sales. But he’s expecting profits to be £15m higher then too. Wolfson’s view seems to be that people will spend less this year, but it won’t be anything like as bad as some of the doom-mongers were suggesting (if only there were more optimists like him about).
With both results well ahead of expectations, it’s no surprise that share prices have been up across the retail sector this morning, with even the likes of M&S, Sainsbury and Tesco enjoying a bump. Clearly the City thinks the worst is over for the high street. Although if its recovery is reliant on the Great British weather, perhaps we shouldn’t count our free-range corn-fed chickens just yet.
In today's bulletin:
Rich kids get all the best jobs, says Government
Next and Morrisons cheer City with higher profits
Starbucks tries going local
3bn tax bill sends Porsche's VW bid into a spin
We're all not going on a summer holiday