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Retail: Next on track to overtake Marks & Spencer after posting annual profits of £695m

08:52 20 March 2014

Next has reported annual profits of £695m.

Next has reported annual profits of £695m.

Fashion chain Next today toasted a “great year” for the group, as a £695million annual profits haul put it on course to overtake rival Marks & Spencer for the first time in its history.

The milestone performance comes after impressive Christmas trading, which helped full-year sales across its Next Directory catalogue and online division leap 12.4% higher while its stores notched up growth of 1.7%.

Underlying pre-tax profits were 11.8% higher on the previous year and came after Next upped its profit guidance for the second time in just over two months following the better-than-expected festive period, when it left many competitors in the shade.

It is now firmly set to make more money than high street stalwart M&S for the first time since it launched in 1982, with M&S predicted to see underlying annual pre-tax profits fall to around £628m.

Next chairman John Barton said: “The year to January 2014 was a great year for Next.”

The group is expecting further profits growth over the year ahead of between 5% and 11%, which would take its profits as high as £770m.

It expects sales growth of between 4% and 8% for Next branded sales over the current year. But the group added a note of caution over the outlook. It said: “The consumer economy has steadily improved over the course of the last year.

“This modest improvement looks set to continue. However, conditions are likely to remain far from buoyant and there are real risks to the sustainability of the current recovery.”

M&S and a raft of clothing retailers resorted to hefty pre-Christmas discounting, which damaged profit margins. But Next stood firm on its long-held policy of not discounting before Christmas and said its annual stock of clearance items was 15% lower than a year earlier, while full-price sales grew by 2.9%.

It also hailed its fashion team’s move to be “braver in buying into new trends” and efforts to alter ranges to reflect a growing trend for consumers to buy closer to the point at which they need the clothing.

The group, which has 541 stores, is boosting the availability of cold weather clothing in January, February and March and warm weather clothing in August and September, moving from a two-season buying cycle to a four-season cycle.

Next added that its burgeoning Home division has been helped by Britain’s housing market recovery, particularly over the last six months.

Home sales now account for 18% of total turnover and the group aims to continue growing the division, with new large out-of-town Home stores set to account for nearly a third of all additional space planned for 2014.

Chief executive Lord Wolfson said the group was budgeting conservatively for sales growth over the current year as it saw the Christmas performance being a hard act to follow.

He said: “In the year ahead we expect the fourth quarter to provide tough comparatives and it will be hard to beat. Accordingly we are budgeting very cautiously for the final quarter.”

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