Next raises the bar with higher profit target

Recession Schmecession. High street clothing stalwart Next has upped its full-year profit target after bumper half-year sales.

by Michael Northcott
Last Updated: 19 Aug 2013

It's not often that you hear upbeat news about the UK high street but clothing retailer Next has bucked the trend, reporting a 4.5% rise in sales in the six months to the 28 July. Business is so good, it seems, that the chain has decided to announce a 'modest increase' in its full-year profit target, from £610m to £620m at the top end of expectations. 

Given the faltering performance of Next's neighbours in town centres everywhere, this is a rare note of high street optimism.  Plans for shoring up the business are also afoot: in the statement, Next explains its intention to buy back around £200m worth of shares. This is in addition to the £112m it has already bought back, and will mean that the firm’s earnings per share will increase by around 6% more than the growth in profit. So a bunch of existing shareholders are about to get a decent windfall, too. Everyone’s happy!  

But is Next jumping the gun with its revised profit targets? Today’s figures actually mark a turnaround for the brand as group-wide sales from August to Christmas last year were only up by a paltry 3% (traditionally retail’s busiest period). Sales at its 500 bricks-and-mortar UK and Irish stores actually fell by 2.7% in that time. The chain was given a thorough dressing down by competitors such as John Lewis, which enjoyed 6.2% sales growth in the period.  

But, as it often the case with results, if you look behind the numbers, things get more interesting. Part of the reason Next's sales were disappointing in the run up to Christmas 2011 was because it was one of the few to avoid discounting until after Christmas. Margins were maintained and now, what little extra money the public are spending has a bigger effect on Next’s balance sheet. It takes guts to sacrifice sales for the sake of margins, but if the upturn ever comes, Next will emerge in a stronger position than many of its rivals.  

Meanwhile, London retailers are complaining that the Olympics have dampened sales by as much as 30% compared with trading this time last year, as people avoid central London. This should be temporary, but it is nonetheless another unwelcome blow to the high street. Let’s hope August’s eerily empty streets will mean a spending rush once the Games are over. And that Next's silver lamé-lined predictions will come true...

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