Next share price falls after it cautions over year ahead

Jessica Morris
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Next posted fashionable earnings (Source: Getty)

The figures

Next said that total sales for the year to the end of January rose seven per cent to £4bn, up from £3.7bn a year earlier. Pre-tax profit jumped 12.5 per cent to £782.2m, up from £695.2m a year earlier.

This was at the upper end of expectations set in December which forecast full-year pre-tax profit between £765m and £785m.

While the high street retailer added 20 new stores, it also closed 22, leaving it with a total of 539 stores in January 2015.

Shares in the company fell as much as seven per cent to 71 pence per share in early morning trade today.

Why it's interesting

Investors will be breathing a sigh of relief today, as the retailer had been forced to downgrade its profit forecast last year for the first time since 1998, saying full-year profits would be lower after unseasonably warm weather.

This was an unusual move for the high street giant, which normally gives out cautious guidance, preferring to surprise on the upside (a tactic some of its rivals could probably afford to deploy more often).

More generally, Next's performance is a good indication of the general health of the high street. It tends to outperform the pack, but still acts as a bellwether for middle England and it suggests consumer sentiment is pretty good.

Next also gave an update on its expansion into China.

"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-10 trading territories," it said.

What Next said

The economy is growing, wages are finally rising, and unemployment is falling. But Next's chief executive Simon Wolfson remains cautious.

"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," he said.

"Although the consumer economy looks benign, we remain very cautious in our sales budgets. While 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."

In short

Last year may well have been a blip, and it looks like things are back on track. But the real challenge will be in the medium term, as the absence of Next's long-standing product director Christos Angelides - who left last autumn for Abercrombie & Fitch - could well be felt.

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