Next sales and profits up but chief Lord Wolfson remains cautious on outlook

Next’s underlying pre-tax profit was up 12.5% to £782m, “flattered” by 1.3% as a result of a £9m accounting profit on currency instruments. 

The retailer’s profit growth was also driven by new retail space (£13m), existing stores (£9m) and online (£35m).

Total sales were up 7.2% to £4.03bn, driven by a stronger first half, when brand sales increased 11%, compared to 5% in the second half.

Retail sales – revenue generated through its stores - were 4.8% ahead of last year, of which new space contributed 3.4%.

Directory sales, largely comprising online, were up 12.1% ahead of last year.  Sales in the UK grew by 8.2% and overseas online sales increased by 61%.

Despite the strong performance, Wolfson remained cautious on the outlook.

He said: “The economic outlook for the UK consumer looks benign. Low price inflation, an end to real wage decline, healthy credit markets and strong employment all paint a more positive picture than in recent years. 

“We remain very cautious in our sales budgets. Whilst we are happy with most of our current product ranges, we recognise that some collections are not as strong as they were at this point last year. 

“In addition, during the spring and summer seasons, we face very tough comparative numbers from last year, when sales were assisted by unusually warm weather. There is a potential upside in the second half as the comparative performance last year weakens, particularly in the third quarter.”

Next expects full-price sales growth for the full year to be up by between 1.5% and 5.5%, first-half sales growth of up to 3%, and the second half up 3.5% to 7.5%.

The retailer said it focused on “improving the design content” of its ranges last year. “Unusually, our ranges in spring and summer 2014 were successful across all of our five product divisions (Womenswear Clothing, Women’s Shoes and Accessories, Menswear, Childrenswear and Home).  The focus on design continues in the year ahead with further investment in our fabric and print resources,” Wolfson said.

Next will continue to develop a “small amount of product much closer to the season, using shorter lead time territories and quicker response suppliers”. 

Wolfson said: “This approach to buying is newer and less comfortable for Next, and requires a different mind-set to our traditional techniques. We aim to build on the success we have had with shorter lead-time product and make more of this buying method going forward.” 

Next has 529 stores at present and expects to add 350,000 sq ft this year, net of closures, and a similar amount in 2016 and 2017 . 

Wolfson said Next has managed its portfolio well, aiming to take on shorter leases on its stores. He said in 2008 approximately 50% of Next store leases would have expired in just over 10 years’ time.  Today 50% of its leases will expire in just six years’ time.

The retailer has invested in its customer service and in the last 18 months implemented a plan to “overhaul” its recruitment process to focus on attitude rather than experience and increase its lowest wages by 6%. It has also introduced new training and changed its staff bonus scheme to reward on service levels rather than sales performance.

Next has invested in its online delivery offer, extending its cut off point for next day delivery to 11pm, and it aims to extend it to midnight by August. It said it takes around 9% of its orders between 10pm and midnight.

The retailer opened a local hub in Northern Ireland in September allowing it to offer next day delivery in the country and in Eire. It will also “shortly” open a local distribution hub in Russia, where its current delivery promise is 8 to 12 days. The new hub will allow it to offer a stated day service, next-day to customers in Moscow and St Petersburg, and between two and five days for our other Russian customers.

Next said the only “significant” new territory launched last year was China. “Sales started slowly but are now exceeding our expectations and we believe that China will shortly be one of our top ten trading territories,” Wolfson said. “We are currently working on a local distribution hub to serve mainland China, Hong Kong, Taiwan and Japan. We hope to be operational within the current year. Our aim is to reduce mainland China lead times for most of our customers from 14 days, to one to two days.”

Next expects international online sales to grow by 25% in the year ahead, to around £205m.