Next profits boosted by growth in full-price sales

The fashion giant registered a 2.7% increase in pre-tax profit to £319.6m during the six months to July 31. Operating profit grew at the slightly quicker rate of 3.1% to £340.9m.

On a statutory basis, including the impact of the new IFRS 16 regulations, pre-tax profit rose 4% to £327.4m.

Next said full-price own-brand sales advanced 4.1% during the six-month period. Including markdowns, total sales of its own-label products were up 3.8%.

The high street bellwether said sales made through its stores dropped 5.5% to £874.3m. Profits from its shop network slumped 23.5% to £56m.

By contrast, ecommerce sales jumped 12.6% to £1bn and profits from its online division increased 8.4% to £177.1m, as Next continues to benefit from the strategic shift to selling third-party brands through its digital platform.

Next cautioned that it suffered a “disappointing” start to its third quarter, but maintained its full-year guidance of 3.6% full-price sales growth and a £725m pre-tax profit. 

Despite the fall in profitability of its bricks-and-mortar estate, Next boss Lord Simon Wolfson defended the contribution of its physical portfolio. However, he reiterated his call for rents to reflect the role that stores play in the online shopping journey.

“In terms of retail stores, the situation is not quite as one way as it might first appear. Fifty per cent of online orders are delivered to our store,” Wolfson said.

“Returns are a central part of our online service and 82% of returns come back through our stores.

“It is counter-intuitive, but the fact is stores have become an important part of our online service, though their rents are way out of kilter with the value they provide as collection and returns centres.

“So, if stores are to remain open, retail rents must fall and fortunately that is exactly what they are doing.”

Wolfson said half of Next’s leases expire within the next five years, which provides the business with “the flexibility to re-negotiate and restructure our store portfolio”.

He added that Next has “a robust business model” that was “capable of surviving and thriving in an online world”, both in the UK and internationally.

Although he provided little detail on the latter, Wolfson hinted that Next could be about to increase its focus on overseas markets through its online platform, which already sells brands including Ted Baker, Calvin Klein, Superdry, Nike and Adidas.

Wolfson said: “Just as new brands have challenged Next’s incumbency in the UK, we are now challenging and enhancing traditional retail landscapes overseas.

“In overseas markets, we are the new kid on the block. We are selling through our own website and through overseas third-party aggregators.”