Next lifts profit targets but sounds alarm on ‘vicious circle’ of high tax and low growth
Next has lifted its profit target again following “much better” than expected trading in the first half of the year as the retailer was spurred on by booming international sales and record summer temperatures.
The FTSE 100 retail giant saw sales across its group jump by nine per cent in the six months to July, as it posted a £569m pre-tax profit, 10.5 per cent higher than last year.
The retailer told shareholders: “The first half was much better than we originally anticipated, both in the UK and overseas. […] The performance in the first half is all the more unexpected given the strength of sales last year.”
Next posted a 7.4 per cent uplift in UK online sales, compared to its previous guidance of 4.6 per cent, as in-store sales declined by only 1.7 per cent – a softer fall than the 3.3 per cent it had expected.
The group said it now expects to make a full-year pre-tax profit of £1.26bn because of higher-than-expected sales and cost savings in its warehouse operations. This is the firm’s fourth profit upgrade this year.
Lord Simon Wolfson, the firm’s chief executive, said: “It is important to stress that the progress we have made is not the result of a carefully drawn up strategy devised in the boardroom and dutifully implemented across the group.
“Next is not a command-and-control operation. Our overall ambitions are very clear, but they are fulfilled, and to some extent shaped, by hundreds of initiatives and decisions taken by colleagues across the group.”
Labour must ‘get spending under control’
The group’s sales growth in the first half of the year was lifted by a 24 per cent boost in its international sales, while total UK sales edged up by four per cent.
Sales of the Next brand in the UK fell by 0.5 per cent, or £7m, which the group attributed to the growth of its third-party brands, which are “likely to have had some adverse impact on Next brand sales”.
The group has snapped up a number of smaller retailers in recent years, including Joules, FatFace and Russell & Bromley.
Next said that the “great success that the [Next brand] enjoyed” at the start of the decade “encouraged us to hold on to bestsellers for too long”. The retailer is planning to boost the “newness,” choice and quality of its menswear range to grow sales, it said.
Ahead of October’s Budget, retailers have urged Andy Burnham’s government to back the high street by cutting business rates and to tackle youth unemployment by slashing employment costs.
Next said the government’s huge debt and high level of public spending means it “seems likely that it will have to increase taxes” next month.
“In our view, the best outcome for UK growth would be a credible plan to get Government spending under control – eliminating the fear of higher taxes – alongside supply side measures to boost growth,” the group said.
Next cut its outlook for UK sales growth in the final six months from 2.8% to 2% as it flagged concerns over the impacts on consumer spending from the rising cost of living, higher mortgage costs and a cooling labour market.
Lord Wolfson said: “The tax burden is at its highest level for over 60 years and seems to us to be at the point where further increases only risk stifling growth – and lower growth is likely to only worsen Government finances – a vicious circle.”
Aarin Chiekrie, an equity analyst at Hargreaves Lansdown, said: “Next delivered its first-half results in style, with sales growth accelerating over the period and breezing past the fashion company’s original guidance.
“In the UK, hotter-than-expected weather and more effective marketing saw customers logging in to refresh their summer wardrobes online, helping offset a small decline in-store.”
Shares in Next gained 2.4 per cent to 14,915p in early trading.