High street sunshine won’t last for long

RECESSION? What recession? If the sound of tills ringing at Next is anything to go by, the consumer has weathered the worst slump in 60 years remarkably well. Full-year results came in at the top end of expectations, with pre-tax profits up 18 per cent, while like-for-like sales also edged up by 0.5 per cent.

Next wasn’t the only retailer in fine fettle yesterday. Clinton Cards posted higher profits, as did stripey designer Ted Baker. And suit hire specialist Moss Bros managed to narrow its pre-tax loss.

This is probably as good as it gets, however. Next says like-for-like sales in the first half of this year will range from a fall of 2.5 per cent to growth of 0.5 per cent, as the rise in VAT kicks in. Visibility for the second half is poor, but it could be carnage, with a new government certain to hurt the consumer by hiking taxes and cutting spending.

Thankfully, Simon Wolfson has been investing in life after the high street. Revenue at Next Direct, its catalogue and online arm, is expected to grow between one and four per cent in the first half. It already pulls its weight and has higher margins than the store business, accounting for a quarter of revenues and over a third of operating profits.

For shareholders willing to take a punt on the retail sector, Next is a good pick. Trading on 10.9 times this year’s estimated earnings, it offers a considerable discount to the wider retail sector.

Any bet on retailers is risky, however. The sun might be shining on this high street at the moment, but this has the suspicious air of a false dawn. david.crow@cityam.com