Cash rich Next to reward shareholders

Fashion retailer Next has reported strong sales and said its shareholders will receive a share of hundreds of millions of pounds of surplus cash.

Christmas sales have exceeded its own expectations and the company has raised its forecast for full-year profits to between £684m and £700m.

It has also announced a one-off dividend of 50p costing the firm £75m.

In the year ahead it expects to generate £300m of surplus cash which will be returned to shareholders.

In its trading update, Next said: "We are now faced with a question as to what to do with the accumulated surplus cash (we already generate more cash than can be invested productively in the on-going development of the business)."

Outperforming

Sales rose 11.9% between 1 November and 24 December compared with the same period last year, which the company said was "significantly" beyond its own expectations.

Investors cheered the trading statement and Next shares jumped 10% by the close of the London markets.

Among the Christmas trading updates released so far, Next, John Lewis and House of Fraser have all reported healthy sales.

Debenhams has been the major disappointment. On Tuesday, it warned that profits would be lower than forecast after weak Christmas sales.

Next said it had seen a particular improvement in sales of seasonal knitwear and nightwear.

Sales at its stores rose 7.7%, but like other rivals, it was online sales that really drove growth with a 21% gain between 1 November and 24 December compared with the previous year.

Next has now raised its annual profit guidance twice in six months. Back in October it had forecast profits of between £650m and £680m for the financial year, which runs to 25 January.

Analysts said that Next's strategy of not discounting before Christmas had paid off.

"Next's strategy of holding firm on pre-Christmas pricing augurs well for full-year earnings and the business remains one of the sector's outperformers, in stark contrast to some major competitors," said Bryan Roberts from Kantar Retail.

Caution

Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers said: "Product selection, with knitwear this time a winner, is first class, whilst the group's early adoption of a bricks and clicks business model continues to server it extremely well - the Directory business has again led the way."

However, Next made some cautious comments about the broader economy, in particular the lack of wage growth.

"The problem of little or no growth in real earnings looks set to persist for some time, and we cannot see any reason to expect a significant increase in total consumer spending in the year ahead," the firm said.

"We are also wary that any return to significant economic growth is likely to result in rising interest rates which, in turn, is likely to moderate spending of those with mortgages."