Next full-year profits drop as Lord Wolfson warns of trouble ahead

The fashion giant’s underlying pre-tax profit slipped 3.8% to £790.2m – slightly below its central guidance of £792m – in the year ending January 31.

Next Retail sales dropped 2.9% as profits from its store estate tumbled 15.8% to £338.7m.

Its Directory division registered a 4.2% jump in sales full price Directory sales edged up 1.2% in the UK and advanced 18.5% overseas as profits grew 9.6% to £444.1m.

The high-street bellwether’s total group sales were broadly flat at £4.1bn.

But international sales through its 186 franchise stores tumbled 15% to £63.7m, as operating profit from the division slipped 9% to £9.3m.

Objectives ‘unchanged’

Next plans to increase investment in its Directory business by £11m this year, including the roll-out of Next Unlimited, which gives customers a year’s unlimited next day delivery for £20.

It also plans to redesign its website and launch an overseas mobile platform.

Wolfson warned that “the year ahead looks set to be another tough year” for the business, but said its strategic objectives remained “broadly unchanged” as it faces into a turbulent trading environment.

“The year ahead looks like it will be tough with a combination of economic, cyclical and internal factors working against us”

Lord Wolfson, Next

Next will focus on improving its product, marketing, services and stores, while also keeping keen control on costs.

The business said it offset £41m of cost increases during the year with £42m of cost savings.

However, it is anticipating costs to rise by a further £36m in the year ahead, including a £4m impact from the national living wage and £9m in additional taxes such as business rates and the apprenticeship levy.

‘Cautious year ahead’

Despite identifying £26m of cost savings to help combat those rises, Wolfson said Next remains “extremely cautious about the outlook for the year ahead.”

He pointed to three potential threats: a sectorial shift away from spending on clothing, price inflation as a result of sterling’s devaluation and potentially weaker growth in real incomes in the wider economy.

Wolfson said: “The year ahead looks like it will be tough with a combination of economic, cyclical and internal factors working against us.

“Our reaction to these challenges will be, as it has been in the past, to acknowledge where we can improve and focus on our core business.”

‘Financially strong’

He added: “We are in a good position to deliver these objectives. Next is financially strong with high net margins, healthy cash generation, good cost control and a robust, well financed balance sheet.

“We have a highly profitable, well maintained and relatively flexible store portfolio and excellent home shopping operations in the UK and overseas.

“For Next these have proven to be the foundations of long-term success. We aim to build on them in the year ahead.”

Next maintained its profit guidance for the 2017/18 financial year of £680-£780m.