Next overtakes M&S as CEO delivers economic warning

 
Harriet Green
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High street fashion store next had, in its own words, a great year last year. In a landmark moment, it's overtaken Marks and Spencer as the biggest clothes retailer by profits in the UK. It's upped its sales growth forecast significantly - from between one and four per cent to between four and eight per cent.

In 2013, Next saw profit before tax rise 11.8 per cent to £695m, and the company’s planning to raise its full year ordinary dividend by 23 per cent to 129p.

Meantime, chief executive Lord Wolfson (pictured) has delivered something of a warning when it comes to relying on growth driven by consumer credit.

The store's online and catalogue business, Next Directory, grew by 12.4 per cent to £1.3bn - narrowing the gap between it and next retail, which saw only modest growth of 1.7 per cent to £2.2bn. Sales grew 5.4 per cent to £3.7bn in the year.

It paid a special dividend of 50p a share in February, and will do the same in May. It continues its share buyback, saying:

Cash flow was again strong and we continued our share buybacks, purchasing 6.2 million shares at an average price of £47.40 and reducing our shares in issue by 3.8%. During the year we returned £461m to shareholders through share buybacks and dividends.

Over the year to January, Next’s share price rose 55 per cent to £62.80.

A warning on credit

In the results statement Lord Wolfson warned that, when it comes to outlook, despite a pickup in the consumer economy, “conditions are likely to remain far from buoyant and there are real risks to the sustainability of the current recovery.”

Cautioning more widely on an economic recovery based on credit, he said that, although the gap between growth in earnings and inflation is closing,

It is worth noting that last year's increase in spending appears to have been driven through increased credit. If anything has been learnt from the last ten years it is that credit cannot continue to grow faster than wages forever. Until we see significant increase in the supply side of the economy (profitable investment and improved productivity), we cannot bank on a return to sustained growth. Consequently we remain cautious in our budgeting for the year ahead.

Outlook for store

Next has significantly upped the sales growth its expecting this year, but highlights that an exception fourth quarter will be tough to beat:

We are budgeting for total NEXT Brand sales growth of between four per cent and eight per cent in the year ahead, this compares to the one per cent to four per cent estimate we gave at this time last year. It reflects the underlying improvement in the economy and the fact that we are opening one per cent more new space than last year.

Some might argue that our sales range is conservative when compared to the 5.5 per cent growth we achieved last year. However, last year's total was significantly enhanced by the exceptional last quarter. In the year ahead we expect the fourth quarter to provide tough comparatives and it will be hard to beat. Accordingly we are budgeting very cautiously for the final quarter.