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Next Shares Jump to Record as Retailer Sees Better Outlook

Next Plc, the U.K.’s second-largest clothing retailer, forecast that next year may be less challenging for retailers and raised its annual profit forecast, sending the shares to a record close.

Consumer spending may start to improve in the second quarter of 2012, Chief Executive Officer Simon Wolfson said today as Next reported a jump in first-half earnings.

“Any recovery in spending is likely to be slow and take a long time, but it seems reasonable to believe that by the second quarter of next year we will begin to see some recovery in the consumer environment,” Wolfson said in a statement.

U.K. retail sales have stagnated this year as government spending cuts and rising fuel prices leave consumers with less to spend. Next has benefited from its position as the U.K.’s biggest online clothing retailer as more people seek the convenience of home shopping. Sales at the Next Directory unit rose 15 percent in the first half, while revenue at the company’s stores fell 1.8 percent, the company said today.

“Next has executed very well in the half,” said Simon Irwin, an analyst at Liberum Capital with a “sell” recommendation on the shares. The retailer is one of only a few globally to have managed “significant price rises” through tight management of inventory and promotions, he said.

Higher Prices

Next said prices increased by 7 percent in the first half because of higher costs and an increase in U.K. value-added tax.

Selling prices will be broadly unchanged in the first half of next year as cotton inflation eases and supplier capacity in the Far East improves, Wolfson said.

Next rose 148 pence, or 6.3 percent, to 2,483 pence as of the 4:30 p.m. close of trading in London, the steepest gain since Sept. 15. The stock has gained 26 percent this year, while larger rival Marks & Spencer Group Plc has fallen 12 percent.

Pretax profit climbed to 228 million pounds ($359 million) in the six months ended July 30 from 210 million pounds a year earlier, the Leicester, England-based retailer said. That compared with the 227.8 million-pound average estimate of nine analysts compiled by Bloomberg.

Better availability of products improved sales by 1 percent to 2 percent in the period as Next placed large orders earlier in the season, Wolfson said in an interview.

Increased Forecast

“We’ve done slightly better in the first half than we were expecting and obviously the new season has started relatively well,” both online and in stores, the CEO said.

Next said it now expects annual pretax profit of 545 million pounds to 590 million pounds, excluding the Ventura customer-services unit which it sold this year. That’s up from a prior target of 535 million pounds to 585 million pounds.

Wolfson said his outlook for an improvement in the consumer climate could be hurt by a worsening European sovereign debt crisis or more rises in energy prices in the U.K.

The peak Christmas period won’t be “dramatically different” from the rest of the year, he said.

Home-furnishing sales were “poor,” Next said, as Britons spent less on more expensive discretionary items.

“People can make do without their sofa or dining room for longer” than they can do without new clothes, Wolfson said. The executive said the retailer will continue to open standalone Home outlets, with another six planned for the remainder of the year, as it secures better leases from landlords.

“The stores we are opening are all extremely profitable so though the market as a whole is having a tough time it actually is a good time to be acquiring” leases, he said.

The retailer increased the interim dividend by 10 percent to 27.5 pence a share.

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