Next Plc raised its full-year revenue and earnings forecasts as the U.K.’s second-biggest clothing retailer reported first-half sales that beat analysts’ estimates, helped by its push into e-commerce.
Revenue under the Next brand rose 11 percent in the 26 weeks to July 26, the Leicester, England-based company said in a statement today. The median of 12 analysts’ estimates compiled by Bloomberg was for a 9.6 percent gain. Next forecast sales growth of 7 percent to 10 percent for the year, sending its shares as much as 3.1 percent higher.
Next has expanded its online business into 70 countries outside the U.K., giving it a low-cost way to compete with Inditex SA and Hennes & Mauritz AB in markets where it doesn’t have stores. That has also helped Next surpass main U.K. competitor Marks & Spencer Group Plc in earnings and market value. First-half sales at Next’s stores were up 7.5 percent while revenue for its home-shopping Directory business gained 16 percent.
The trading update “highlights the strong form the business finds itself in,” wrote Alistair Davies, an analyst at Investec. “Directory sales growth remains stellar.”
Next said full-year pretax profit will be 775 million pounds ($1.3 billion) to 815 million pounds, compared with an earlier forecast of 750 million pounds to 790 million pounds. The company raised sales and profit forecasts in April.
The shares were up 2.3 percent at 6,670 pence at 9:35 a.m in London. That took the advance to 22 percent this year, giving Next a market value of 10.2 billion pounds. That compares with 7.1 billion pounds for Marks & Spencer, which has gained 1.1 percent this year.
“This is another strong set of results from Next as they continue to positively surprise on both top-line growth and profit,” Jamie Merriman, an analyst at Sanford C. Bernstein, said in a note.
Next started a website called Label this year, offering designer clothes under brands including Diesel, Emporio Armani and Jimmy Choo.
Marks & Spencer said on July 8 that first-quarter same-store sales of clothing dropped 0.6 percent and online revenue slid 8.1 percent as customers got used to a redesigned website.
Next Directory, introduced in 1988, has grown to become Britain’s biggest home-shopping business. Next also has more than 500 stores in the U.K. and Ireland.
The company said the first half a year ago was damped by cold weather. The final quarter this year may present a “challenging comparison,” leading Next to expect full year-sales to slow down from the first-half pace, a forecast that may appear “overly cautious,” the retailer said.
“We’re quite uncertain as how to the second half, and in particular the fourth quarter, is going to turn out, just because of last year’s comparison,” Chief Executive Officer Simon Wolfson said in a telephone interview.
Next is investing in store expansion, which it says boosts online sales. Revenue from new space contributed 2.4 percent to the growth in the first half of the year.