Cautious Next delivers strong H1, stands by FY outlook

UK-based apparel retailer Next reported Thursday an understated “good first half” performance with pre-tax profits and sales ahead of expectations. However, its share price opened down 1.7% at £70.40 despite the retailer also maintaining its full-year outlook. Pre-tax profit for the six months to July jumped 19.3% to £324.2m from £271.8m a year ago while net profit grew 18.6% to £257.7m/168.8 pence a share from £217.3m/138.2 pence a year ago. Revenue for the period rose 10.3% to £1.85bn as both Next stores and Next Directory (e-commerce and catalogues) both delivered “significant growth”.

Retail sales came in 7.5% ahead of last year at £1.075bn while Next Directory sales jumped 16.2% to £694.3m.

Next also said it younger womenswear fashion business Lipsy increased sales to £31m and trading profit to £2.5m in H1. Next said it anticipates further Lipsy growth in H2 with full year sales hitting £70m and trading profit reaching £6.5m.

“Over the last six months Next has experienced its strongest sales growth for many years,” the retailer said in its interim statement.

“We have made good progress improving and extending our ranges, opening profitable new space, improving our service and growing our online business – both in the UK and overseas.

“However it is important for us to recognise that this performance is, in some part, down to external factors. An improving economy, low interest rates, increasing availability of credit, less general discounting on the high street and much better summer weather have, we believe, all contributed to an improvement in our sales performance. In addition, an improved housing market has helped our Home business.

It added: “We remain mindful that some of these factors are likely to be less favourable next year and this year’s fine summer weather could present tough comparatives next year, when interest rates are also expected
On Thursday, Next stood by its upgraded July full-year expectations for pre-tax profit of £775m-£815m to January 2015, up from a previous range of £750m-£790m. However, the company upgraded its earnings per share growth to 13-19%, from 12-18% earlier.
Next also said it expects sales growth of 7-10% for the full year, up from its previous prediction of 5.5-9.5%. The company said it is now expects Q3 sales will grow 10% with Q4 up 4%, the latter up against tough year-ago comparisons.

The group also laid out its priorities for the current year: Improving product and design alongside developing retail stores, its Directory business in the UK and overseas, and developing its trial publication Label.

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