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Next’s Profits Climb 8.8%

Lower levels of markdowns, a rise in online sales and an increase in selling space all contributed to the yearly gains.

LONDON — A rise in online sales, the expansion of its selling space and lower levels of markdowns all helped net profits at British retailer Next plc rise 8.8 percent in the year to January to 553.2 million pounds, or $867.9 million, from 508.6 million pounds, or $797.9 million, in the previous 12-month period.

Excluding 2013 exceptional items, net profits gained 16.9 percent.

Pretax profits for the year rose 4.3 percent to 695.2 million pounds, or $1.08 billion, a figure that is set to eclipse the pretax profits forecast for Marks & Spencer. Research notes from analysts Citi and Nomura this week forecast that M&S’ full-year pretax profits, set to be reported May 20, will be about 615 million pounds, or $959.4 million.

Dollar figures are calculated at average exchange for the period to which they refer.

Next said that profit from new retail space — more than 280,000 square feet of space was added during the year — contributed 12 million pounds, or $18.8 million, to its income, while online sales growth boosted profits by 48 million pounds, or $75.3 million.

The retailer’s revenues climbed 5.4 percent to 3.74 billion pounds, or $5.87 billion, during the year. Of that figure, retail sales rose 1.7 percent to 2.22 billion pounds, or $3.48 billion, while sales from the online Next Directory business grew 12.4 percent to 1.34 billion pounds, or $2.1 billion.

International sales from Next Directory grew 86 percent over the year to 101 million pounds, or $158.5 million, representing 3.9 percent of the growth in Next’s online sales.

Also driving growth was a 2.9 percent rise in full-price retail sales, with markdown sales declining 11 percent, which the company said was the result of “a last-minute sales surge immediately before the summer and winter sales.”

John Barton, chairman of Next, said the results gave the firm “a solid platform for 2014.” “Notwithstanding the continued pressure on the U.K. consumer, we anticipate another year of growth for Next,” he said.

Lord Wolfson, chief executive officer, said Next brand sales growth should be between 4 percent and 8 percent in the year ahead, which reflects “the underlying improvement in the economy and the fact that we are opening 1 percent more new space than last year.”

However, Wolfson was cautious on the “tough comparatives” that the firm’s “exceptional” fourth quarter would provide against the current fiscal year. In its current fiscal year, Next expects to achieve pretax profits of between 730 million pounds and 770 million pounds, or $1.15 billion and $1.21 billion.

During an analysts’ call Thursday, Wolfson said the firm is “more positive about the economy than we have been for the past six years,” noting that a rise in mortgage approvals in the U.K. is having a positive impact on Next’s home business.  He also pointed to a greater flow of credit into the U.K. economy during 2013 and the fact that the growth in U.K. wages is almost matching the inflation rate. However, he noted that “any real, strong, positive movement in the economy will result in an interest rate rise and that will [have] a significant impact [on consumer spending].

“I don’t think it would be right to prepare for a return to the boom days, because as soon as it looks like there will be a boom, the interest rate breaks will be applied, ” said Wolfson.

Next’s shares closed up 2.3 percent to 67.30 pounds, or $111.72, on the London Stock Exchange Thursday, following the results.

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