Next profits slip but prospects now 'less challenging'

Next full-price brand sales fell 1.2% in what boss Lord Wolfson described as a “difficult” half to July 2017. Total sales, including markdown, dropped 2.3%.

Lord Wolfson said the last three months had been encouraging and “our prospects going forward appear somewhat less challenging than they did six months ago”.

As a result, Next said it would “modestly upgrade” its sales and profit guidance for the full year.

A divergence in store and online performance

Wolfson noted a “marked divergence” in performance between its stores and online business. Profits plummeted 33% in its retail business as in store.

Wolfson said the combination of falling sales, a large fixed cost base, some one-off increases in costs and higher markdown costs, all served to reduce profit in its stores.

Sales dropped 8.3%. But Directory profits climbed 6.3% following a 5.7% jump in sales.

Despite this, Next expects to add square footage to its estate this year and will add between 150,000 sq ft and 200,000 sq ft of net trading space next year.

Wolfson said: “As the centre of gravity of the clothing market shifts towards the internet, we have taken a long hard look at the future of our retail business. There are those that believe that retail shops will be more of a liability than an asset in the future; we do not see it that way.

“There are two important reasons. Firstly, our store portfolio looks set to remain profitable and strongly cash generative for many years to come. Secondly, our shops are an important part of our online service to the increasing number of customers who collect and return their orders through our stores.”

Wolfson said that the strong performance in Directory was the result of investment in online systems and marketing.

Next’s third-party brand website Label was the star performer. Full price sales surged 40.6% at the business. Label sales are expected to hit £285m this year.