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Next Sees Tough Year Ahead After Holiday Sales Disappoint

Next Sales Rise Less Than Estimated
Pedestrians pass a Next Plc clothing store on Oxford Street in London. Store sales fell 2.7 percent, worse than analysts expected, while revenue at the Directory home-shopping division rose 16.9 percent. Photographer: Chris Ratcliffe/Bloomberg

Next Plc, the U.K.’s second-largest clothing retailer, reported “disappointing” holiday sales and forecast slack profit growth next year as the euro-debt crisis and a credit squeeze restrict consumer spending.

Total sales rose 3.1 percent in the 21 weeks ended Dec. 24, the Leicester, England-based retailer said today. That missed the 3.7 percent median estimate of 12 analysts compiled by Bloomberg. A 17 percent gain in revenue at the Directory home-shopping unit was offset by a 2.7 percent drop at Next stores.

Next fell as much as 5.7 percent in London trading, the steepest drop since August 2010. Warm winter weather and increased discounting by competitors contributed to “subdued” sales in the final quarter, the retailer said. Pretax profit in the fiscal year through January 2013 will be “slightly up,” Next also said, causing some analysts to trim estimates.

“Trading over the peak period appears to have been weaker than feared in retail,” Matthew McEachran, an analyst at Singer Capital, said by e-mail. The company’s “cautious guidance” may lead to reductions of about 3 percent in consensus profit estimates for next year, according to the London-based analyst, who has a “fair value” recommendation on the stock.

Before today’s statement, analysts were estimating growth of about 5 percent in Next’s pretax profit for fiscal 2013, according to data compiled by Bloomberg.

Cautious Outlook

“We’re probably slightly more cautious than we were two or three months ago,” Chief Executive Officer Simon Wolfson said in a phone interview. Europe’s sovereign debt crisis, a squeeze on credit for businesses and consumers, and weaker employment are the main “negatives” for this year, the retailer said.

Next shares were down 3.5 percent at 2,644 pence as of 9:18 a.m. in London. The stock rose 39 percent in 2011.

Sales in November and December were “disappointing” given that business in the prior year was affected by snow, Next said.

“We were expecting some kickback from the snow last year, but it was almost as if the snow hadn’t happened,” Wolfson said. “We’re being very cautious about our sales budget,” he said, adding that Next assumes “similar” revenue to last year.

The retailer held off on pre-holiday discounting even as competitors offered bigger promotions to clear inventory. The total amount of stock in the end-of-season sale was 10 percent up on last year, Next said, adding that final clearance rates will be “slightly ahead” of last year and company budgets.

Profit Forecast

“Of the stock we put into the sale, we have sold more of it than at the same point last year,” with discounts of 50 percent being offered across all clearance items, the CEO said.

Next, which gets almost a third of sales from the Directory unit, said it expects “modest growth” in sales next year.

The retailer narrowed its forecast of pretax profit for the financial year ending January 2012 to between 558 million pounds ($874 million) and 572 million pounds, compared with a previous target of 550 million pounds to 585 million pounds.

The drop in 21-week retail sales compared with an average estimate for a decline of 1.2 percent. Analysts had expected Next Directory to show a 15 percent increase for the period.

Directory sales are benefiting from a shift by customers toward Internet shopping. Industry association Interactive Media in Retail Group forecast in November that Britons would spend about 14 percent more online at Christmas as they made increased use of smartphones and tablet computers to place orders.

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