UK: Next profits climb as retail sales bounce back

Next today unveiled a 9% rise in profits today

Next today unveiled a 9% rise in profits today - Credit: PA

RETAIL sales rebounded by a better-than-expected 2.1% last month as shoppers returned to the high street after a snow-hit start to the year, figures revealed today.

Strong sales of tablet computers helped drive the bounce-back, while department stores also benefited with sales up 10.6% in February, according to the Office for National Statistics (ONS).

The surge in retail sales volumes came after a dire January, when sales plunged after many small shops were forced to shut as snow blanketed much of Britain.

The figures came as fashion chain Next unveiled a 9% rise in profits but said that trading in recent weeks had been “quiet”.

The group, which has 541 stores, said current demand reinforced its cautious approach as it budgets for stores to take moderately less than the previous year.

Sales in its retail estate were flat at £2.19billion in the year to January but with its online Directory business increasing revenues by 9.5% to £1.2bn the blue-chip company’s profits rose to £621.6million.

Chairman John Barton said the group performed well in difficult conditions. However, he added: “We anticipate another challenging year ahead, with little if any growth in the UK retail economy.”

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Sales in the current financial year are at the bottom of its target range, although it hopes this situation will improve as temperatures return to normal.

It is targeting profits of between £615m and £665m for this year, helped by stability in supply chain costs.

However, the company warned of potential price rises next year if the pound remains at its current depressed rate against the US dollar.

Shares were 1% higher following the update, which came on the day that Next opened its latest store at the new £350m Trinity Leeds shopping centre.

It added 10 new stores last year, including five Home shops, and said there were further opportunities to profitably increase UK selling space.

However, it said it remained frustrated by planning delays as it attempts to transform the quality of construction associated with out-of-town retail.

The company said: “In our dealing with local councils it is noticeable that some are much more pro-growth and pro-jobs than others.

“Many local councils are enthusiastic and efficient; but a few remain an unhealthy mix of Luddite intransigence and incompetence.

“Going forward, in areas where councils traditionally have got away with just saying ‘no’, we will be more active in harnessing the law and the full weight of public opinion to campaign for growth.”

Analysts said the latest retail figures from the ONS came as a surprise, given that average earnings growth of 1.2% is well short of inflation at 2.8% and consumer confidence remains low.

Despite the economic difficulties, some companies such as Zara, Sports Direct and Asos have reported strong results recently.

Peter Saville, partner at restructuring firm Zolfo Cooper, said: “This is certainly a step in the right direction, but retailers can’t afford to take their eye off the ball.

“Struggling firms will need to follow in the footsteps of these successful retailers by staying on top of the latest trends, providing an innovative experience for shoppers and developing a multi-channel approach.”

Vicky Redwood, chief UK economist at Capital Economics, said: “February’s UK retail sales figures bring some good news after the gloom of yesterday’s Budget.

“The impressive 2.1% monthly rise in sales volumes far exceeded the consensus forecast of a 0.4% gain (and even our forecast of a 1% rise). Admittedly, the rise is partly a bounce-back after January’s snow-driven dip, but it more than reverses January’s 0.7% drop and the retail surveys (which have been less affected by the snow) have indicated some pick-up in underlying momentum.”

However she added that, with pay still dropping sharply in real terms, a sustained recovery in consumer spending “still seems unlikely soon”.