Retailer Next rides out ‘perfect economic storm’ with 5% rise in profits

RETAILER Next said today it had ridden out the “perfect economic storm” , with �1billion of online and catalogue sales boosting profits by 5%.

The fashion and homewares chain, which has 536 stores, said the haul of �570.3million for the year to January 31 was slightly ahead of its previous guidance.

Its Directory arm saw sales rise 16% to �1.1bn, and now accounts for nearly a third of its business, offsetting a 1.4% decline in its retail division.

Chief executive Simon Wolfson said he hoped softer inflation will mean consumers no longer feel they are becoming poorer, which should give a boost to the UK’s retail sector.

However the group predicted more retail sales declines this year and warned that the outlook for the year ahead remained “very uncertain”.

Next will open 15 more stores than it closes in the coming year, as well as 19 new concept sites in coming years, which have separate fashion and home stores next to one another and sell a range of DIY goods.

The group said: “2011 presented the retail sector with the perfect economic storm. Consumer demand was anaemic, held back by a combination of high inflation, low growth in wages and limited growth in consumer credit.”

Lord Wolfson believes Next’s high street business still has a bright future as it goes hand-in-hand with the flourishing Directories business. Stores were increasingly being used to handle online orders, with 59% of parcels returned through stores.

He said: “We remain convinced that there is a continued place for fashion retail stores and that increasingly customers will see stores and online as part of a single service.”

The group closed 14 underperforming stores in the year but said 90% of its store estate makes a return of over 15% and less than 1% makes a return of less than 5%.

Next raised prices by an average of 7% last year as it was forced to pass on rising cotton and commodity prices.

But it expects prices to be flat this year as last year’s VAT hike falls out of the equation and inflation eases, which will help consumer spending and confidence.

Lord Wolfson added: “The squeeze in real earnings has been enormous this year - there was a big difference between 5% inflation and 1.5% earnings growth.

“We are already seeing inflation coming back in line with earnings growth. Consumers will feel much better and won’t feel like they are getting poorer, which was the case last year.”

The group forecasts that retail sales will at best be flat and at worst decline 3% in the current year although the strong growth of Directory will continue, with sales up by as much as 12%. It expects profits for the current financial year to be between �560m and �610m.