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Retail: Next joins John Lewis and House of Fraser as a winner in the run-up to Christmas

10:12 03 January 2014

Next today lifted its profit forecast after strong trading in the key Christmas period.

Next today lifted its profit forecast after strong trading in the key Christmas period.

Fashion chain Next joined the list of Christmas retail winners today as it said sales over the festive season had been “significantly” better than expected.

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The group lifted its profits forecast for the second time in just over two months after the robust performance, with pre-tax profits for the year to January 25 now expected to surge by up to 12.6%.

Sales across its stores leapt 7.7% higher between November 1 and Christmas Eve, while it said revenues surged by 21% in the Next Directory catalogue and online division.

Next, which traditionally holds off from early discounting, said it went into the January clearance sales with 11.5% less stock to shift after the strong run-up to Christmas.

It joins rivals Johns Lewis and House of Fraser in celebrating buoyant festive trade, although a shock profits warning from troubled Debenhams earlier this week revealed the pressure on some high street retailers.

Next offered cheer for investors as it said it would pay out £75 million in special dividends worth 50p a share and return a further £300 million to shareholders over the year ahead following its bumper year so far.

It now expects to earn between £684million and £700m in its full year, up from a previous range of between £650m and £680m.

Next put its strong Christmas performance down to better ranges of knitwear, nightwear and gifts, as well as an increased confidence in online deliveries seeing shoppers buy over the internet right up until the weekend before Christmas. It also expects final clearance rates in the January sales to be “marginally” up on a year earlier.

But the group cautioned that the sales growth seen in its Christmas quarter was “very unlikely” to be maintained at the same rate in early 2014, with consumer finances under pressure and the threat of an interest rate hike looming large.

It said: “It seems likely that the economy will continue to steadily improve with strong employment numbers driving a general recovery. However, the problem of little or no growth in real earnings looks set to persist for some time.

“We are also wary that any return to significant economic growth is likely to result in rising interest rates which, in turn, is likely to moderate spending of those with mortgages.”

Next shares powered as much as 11% higher after the trading update and special dividend announcement, sparking gains across the retail sector on the London market as it added to yesterday’s robust figures from John Lewis and House of Fraser.

John Lewis said like-for-like sales climbed 6.9% over the five weeks to December 28, while House of Fraser hailed its best ever Christmas with comparable sales up 7.3%.

Debenhams has been an early casualty so far, announcing the resignation of finance boss Simon Herrick yesterday just after issuing a major profits warning following poor Christmas sales.

Lord Wolfson, chief executive of Next, said trading was less volatile this Christmas, despite the wet and stormy weather.

Its sales growth - up 11.9% across both stores and the Directory business - marks a sharp pick-up on the 4.3% seen in the previous quarter and last year’s 3.9% festive rise.

But Lord Wolfson said that trading over 2014 was likely to remain “relatively subdued” and warned that consumer spending would not grow significantly for “some years”.

“People aren’t feeling much wealthier - until we see strong growth in salaries, we won’t see a return to strong consumer sales growth,” he said.

Next, which currently has around 500 stores, plans to expand its retail space by 4% on a net basis over 2014, while also growing its online offering in the UK and overseas. It plans to launch a site in China this year.

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