Next sales on target as online business outperforms

Next has reported that its autumn and pre-Christmas sales were on target after buoyant online business made up for a poor showing at its stores.

Total sales at the clothes retailer between 1 August and 24 December rose 3.1% compared with a year earlier, ignoring the effect of rising VAT.

Next Directory sales grew 16.9%.

But its High Street business, which sees some two-thirds of sales, recorded a 2.7% fall, sending Next's share price 3.1% lower by the close of trading in London.

Next has seen its share price rise 39% over the past 12 months, easily outperforming a 5% fall in the broader FTSE 100 index.

Profit margins

Next reconfirmed its full-year profits forecast at £565m, narrowing the range to plus-or-minus £7m.

The total sales growth figure of 3.1% was in the middle of its previous guidance of 2.5% to 4%, despite the "slightly disappointing" numbers from its 500 stores.

Next expressed uncertainty in its statement as to why the High Street performance had been so weak, particularly considering that last year's sales had been hurt by cold weather.

One possibility cited in its statement was its long-standing policy of not cutting the price of its products in the run-up to Christmas.

"Next's own admission of disappointment is a setback to its hitherto robust growth story," said Richard Hunter, head of equities at brokerage Hargreaves Lansdown.

"The fact that the company did not discount its products in the approach to Christmas may have been a factor, whilst the more general consumer malaise has yet to be corroborated by updates from its rivals.

"In addition, higher sales do not necessarily translate to higher profits, so the fact that the company has been able to maintain operating margins may yet play into its hands."

Richard Perks, analyst at research firm Mintel, confirmed this view.

"These figures from Next are really pretty good I think," he told the BBC.

"OK, Next may be - in sales terms - held back by the fact that it wasn't discounting, but in profit terms it will be a lot better off."

Mr Perks said he was optimistic about retail sales across the UK - predicting a 4% rise in December.

"People are reluctant to cut back any more on retail, and are cutting back elsewhere, particularly on leisure," although he added that the rising cost of food was still crimping spending.

Next said it was cautiously optimistic about its end of season sales - which began after the end of its latest reporting period - and expected results to be slightly ahead of budget.

The retailer said it expected sales this year to be helped by a probable freeze in the price of its products.

It forecast generating £200m surplus cash in the year ahead, which it said it would return to shareholders via share buybacks.