Next Increases Profit Target by $15 Million on Fewer Markdowns

Next Plc, the U.K.’s second-largest clothing retailer, increased the higher end of its profit target by 10 million pounds ($15 million) as it sold more summer items at full-price.

Full-year profit before tax will be as much as 675 million pounds, the Leicester, England-based retailer said today, ahead of an earlier target of as much as 665 million pounds. Profit is being helped by the company selling fewer items at a discount as it went into the sale season with 20 percent less stock. The shares rose as much as 3.6 percent to a record in London.

“We did a much better job on markdown” said Chief Executive Officer Simon Wolfson in a phone interview as the company managed its full-priced inventory better, which led the company to beat its own targets for those sales. That impacted revenue in the final few weeks of the first half as it had less product on offer in the “End of Season” sale.

“The Next brand is continuing to trade well as it progressively upscales the offer,” Simon Irwin, an analyst at Credit Suisse, said. “Judging by the high levels of clearance across the High Street, we do not expect this pattern to have been repeated by many peers.”

The FTSE-100 retailer, which has more than 500 outlets in the U.K. and Ireland, is focusing on tighter stock levels, opening retail space such as homeware outlets and growing online to stoke sales as Britons continue to be cautious in their discretionary spending.

Share Gains

Next shares rose 2.4 percent to 5,020 pence at 8:43 a.m. in London trading, boosting this year’s gain to 35 percent and the market valuation to 7.9 billion pounds.

Total sales under the Next brand, excluding value-added tax, rose 2.3 percent in the 26 weeks ended July 27, compared to the median estimate of a 2.4 percent gain from 13 analysts in a survey compiled by Bloomberg. Sales may advance between 1.5 percent and 3.5 percent in the full year if they reach the company’s second-half goal of advancing between 1 percent and 4 percent.

Wolfson said Britons are becoming more spontaneous with their purchases with weekly sales volatility continuing.

“I think it’s a much bigger trend which is about convenience. You have Sunday shopping, online shopping. Its not a reflection of the economy,” the CEO said by phone. “Very little has changed in the U.K.” for the consumer, with earnings growth still lagging inflation, meaning “shoppers are getting poorer.”

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