"The strong performance of Next Directory continued to compensate for slightly disappointing Next Retail store sales," summarized the British retailer in a communication released on Wednesday. Next Brand sales were up 3.1%,
in line with the full year guidance range given in November of between 2.5% and 4.0%.
performance for 1 August to 24 December and the year to date., gathering Sales excluding Vat. were as follows:
NEXT Retail dropped 2.7% in the period covered, and a 2.2% in the year to date. In the same period, NEXT Directory performed fair better, increasing in 16.9% between August and December, rising 16% in the past 12 months. Finally, the Next Brand division gained 3.1% in the second half of 2011, and 3.2% for the past year to date.
Total stock for the End of Season Sale was up +10% on last year. "The Sale has gone well and we expect final clearance rates to be slightly ahead of last year and our budget."
"We did not discount our products in the run up to Christmas and maintained operating margins. We continue to expect full year profit before tax on continuing business (see note) to be in line with our previous guidance. We are now narrowing our guidance range to £7m either side of £565m. This figure would represent an increase in profit of +4.0% on last year. Next’s main financial objective is the delivery of sustainable long term growth in earnings per share, which have been further enhanced through cash generation and share buybacks. At a profit of £565m our EPS would be +11.3% ahead of last year."
"Despite a good final week before Christmas, November and December sales were disappointing given that snow adversely impacted sales in 2010. A number of factors have subdued sales in the final quarter and it is hard to judge to what extent warm winter weather and higher levels of competitor discounting masked the deeper, longer lasting, economic effects," they recognized.
At Next, management has highlighted the positive and negative traces of the year that has just started. On the positive side, the inflationary squeeze on consumers seems likely to ease in Q2, with CPI dropping to levels close to average wage growth. Last year’s VAT increase annualised January 1st, removing a drag on sales, they reminded. "Our own selling prices will be stable year on year, with zero inflation on like for like product."
But the downside cannot be ignored, as continuing difficulties in the Eurozone and its adverse effects on business confidence and the UK banking sector. Continuing credit squeeze on businesses and consumers will deepen the already weaker UK employment numbers.
"Given the level of uncertainty around next year, we will continue with our five point approach to managing the business through a difficult consumer environment: Setting realistic and conservative sales budgets, Controlling costs, Opening profitable new space where we achieve excellent returns on capital invested, Growing our Next Directory online business, both in the UK and overseas, Returning surplus cash to shareholders through share buybacks in order to boost earnings per share."
Financially speaking, Next´s internal budgets for the year ahead "show modest growth in overall Next Brand sales with profit before tax only slightly up on this year."
"We anticipate that Next will generate in the order of £200m of surplus cash after capital investment, tax and dividends which we intend to return to shareholders through share buybacks."
Finally, Next wanted to point out the sell of Ventura, which led the fashion retailer to report an exceptional profit of £38m. The profit on continuing business referred by the company excludes the operating and exceptional profits of Ventura in both years. Growth in earnings per share excludes the exceptional profit but includes operating profits up to the date of sale.