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Next Raises Lower Forecast Limit as Sales Beat Estimates

Oct. 31 (Bloomberg) -- Next Plc, the U.K.’s second-largest clothing retailer, raised the lower end of its full-year profit forecast after sales growth in September helped third-quarter revenue exceed analysts’ predictions.

Pretax profit will be within a range of 590 million pounds ($951 million) to 620 million pounds, versus an earlier target of as low as 575 million pounds, the Leicester, England-based retailer said today in a statement. Total brand sales rose 2.7 percent, excluding value-added tax, beating the 2 percent median estimate of six analysts. Directory home-shopping division sales rose 5.6 percent, less than the 8.5 percent estimate.

Revenue at the Directory business suffered after a gain last year prompted by the introduction of a later evening order time for next-day delivery, Chief Executive Officer Simon Wolfson said in an interview. Next said stronger sales in late September and early October offset an “unusually quiet” start to August.

“We are slightly disappointed at the slowdown in Directory, and we expect some investors may be surprised by such a steep drop in growth,” Jamie Merriman, an analyst at Bernstein Research said. “We are encouraged by the strong exit rate,” or sales performance at the end of the quarter.

Stock Declines

Next declined as much as 1.9 percent to 3,538 pence and was trading down 0.5 percent at 9:19 a.m. in London. That pared this year’s gain in the stock to 31 percent.

The retailer is revamping its online delivery options, adding outlets selling soft furnishings and furniture, and cutting costs to combat a difficult economic climate. U.K. consumer confidence fell to a six-month low in October as Britons become more pessimistic about their finances, GfK NOP Ltd. research company said today.

“Overall sales performance remains volatile, making it hard to draw conclusions from any one short period of time,” Next said. “We expect total sales in the final quarter to increase broadly in line with sales for the year-to-date.”

Third-quarter figures were also held back as the U.K. half-term school holiday, which typically boosts sales, moved from the last week of the period to the first week of the fourth quarter, CEO Wolfson said. Sales performance was less than the first-half growth of 4.5 percent.

“We had a very disappointing start to the season that was made up with much stronger sales towards the back end,” Wolfson said. “We don’t expect any significant change in the consumer economy over the next quarter,” amid a “subdued economy.”

Discounting will continue, with more promotions online this Christmas, Wolfson said. Next plans to hold off on markdown until after the late-December holiday, he said.

“Our best guess for the full year is that it will be pretty much in line with year-to-date” growth in total brand revenue of 3.8 percent, the CEO said.

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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