Next Plc (NXT), the U.K.’s second-largest clothing retailer, reported annual profit growth that topped expectations while adding that the start of the new fiscal year has been “quiet” as cold weather delays spring purchases and economic woes weigh on spending.
Underlying pretax profit rose 9 percent to 621.6 million pounds ($940 million) in the year ended in January, Next said in a statement today, compared with the average estimate of 620.3 million pounds from 20 analysts surveyed by Bloomberg. Sales in the first few weeks of the year have been at the bottom of the Leicester, England-based retailer’s target range of between 1 percent and 4 percent growth, it added.
Next Chief Executive Officer Simon Wolfson said growth will come from store extensions and online as sales at existing outlets decline amid a “flatlining” economy. The U.K. Chancellor of the Exchequer downgraded official growth forecasts for this year to 0.6 percent in yesterday’ budget statement.
The retailer, with more than 500 stores across the U.K. and Ireland, has been opening standalone outlets selling homewares, expanding its online business internationally and buying back stock. That has helped its shares to outperform both the benchmark U.K. FTSE 100 index and larger rival Marks & Spencer in the year to date.
“They are doing very well, they bet and managed the sales of full-price and discount and they are probably taking share from M&S and some of the others from having a better online offer and having better product,” Matt Piner, research director at Conlumino in London, said by phone.
Next shares rose as much as 3.9 percent to 4,310 pence at 10:29 a.m. in London trading. The stock has gained 15 percent this year, boosting its market value to 6.9 billion pounds.
“The economy is flatlining and is likely to remain so for the rest of the year,” Wolfson said. He expects another 18 months to two years before wage increases rise faster than inflation, putting continued pressure on discretionary spending.
The retailer also warned weakness in the pound against the U.S. dollar may result in price increases next year and signalled it will be less enthusiastic about buying back shares as the price rises.
“The year ahead looks no less challenging, but the group is well-prepared and has further opportunities for growth,” Wolfson said in the statement.
Next Brand sales will rise between 1 percent and 4 percent this fiscal year, the retailer forecast, while profit before taxes may gain as much as 7 percent. Next probably won’t increase retail prices this year as a result of the pound’s decline against the U.S. dollar, but it might in 2014.
“The recent sharp fall in the value of sterling will have very little impact on this year’s pricing as we have bought forward most of our foreign currency requirement for the current year,” the company said. “If the pound remains at its current rate of exchange against the dollar, we would expect our prices to rise in 2014.”
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