Next worried about what happens next

Next surprised a few people with a profit hike today - but the celebrations could be short-lived...

by
Last Updated: 12 May 2015

This morning Next said annual profits for its financial year to January had increased 4.1% to £498m, thanks largely to a sterling performance by its internet arm Next Directory. This might come as a shock to those who have been predicting that Next would be one of the biggest losers from the recent slowdown on the high street (the retailer's share price has more than halved in the last year).

To be fair, if you’d come to this conclusion on the basis of their under-populated stores, you wouldn’t be too far wrong. Sales in the retail division were flat at £2.3bn, while profits edged up just 1% to £320m. The real area of growth has been its Directory business (most of which is now done over the internet), which saw profits jump 14% to £164m. So overall the results were respectable, allowing Next to up its dividend to 37p (it’s now paid out £1.3bn to shareholders in the last five years).

However, Next sounded seriously gloomy about its prospects for the current year, warning that profits were likely to slide up to 7% in the first half. Chairman John Barton said trading conditions would ‘continue to be difficult as increased costs and rising taxes put pressure on our customers’, while CEO Simon Wolfson complained that: ‘The Next customer profile is dominated by ABC1 25-45 year olds, who are likely to be hit hardest as their exposure to the costs of debt are high.’ He thinks the misery will continue for at least the next 12 months – not the kind of news shareholders like to hear.

But Wolfson’s adamant that Next won’t go downmarket to try and attract more custom – this would destroy the brand, he says. Instead, he wants to stay focused on the ‘aspirational end of the mass market’ – which is why he spent much of last year worrying about ‘putting a little bit of the magic back into the Next brand’. This segment will enjoy the fastest growth in the long run, he reckons.

Which is all very well - but unless he finds a way to keep making money in the short term, Next might not survive long enough to find out whether he's right...

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today