Next steamroller continues to power ahead, hopes for sunny weather to really fire up 2015’s figures

Next unveiled a strong profits rise early Thursday as both stores and online performed well and more close-to-season products helped get its offer to the customer at just the right time. But it stayed cautious on its prospects for the rest of the year. Ok, we know that’s not exactly big news. When doesn’t Next announce strong results? And when isn’t it cautious despite its success?

But it does have good reason for caution, with CEO Lord Wolfson admitting that “some collections are not as strong as they were at this point last year” and that last year’s warm summer might not be repeated. That would make comparisons tough as warm weather product performed well in 2014.

Of course the upside to that is that continuing warm weather last autumn dented sales of knits and outerwear so there’s something to look forward to, comparison-wise.

Back to those figures… The company met guidance with a 12.5% underlying pre-tax profit rise to £782.2m in the year to January 31 on the back of 7.2% sales growth across the business.

Next has over 500 UK stores and nearly 200 internationally, as well as its large online Directory operation and performance at the stores has sometimes fallen short compared to the Directory. But while store sales growth was less than online, the stores had nothing to be ashamed about with turnover up nearly 5% in the year and profits up 10.4% at the retail store division. Next Directory sales meanwhile rose more than 12%.

But it was definitely a year of two halves with Next brand sales rising 11% in H1 and only 5% in H2.

So what’s the outlook? Next expects sales growth of anything from 1.5% to 5.5% for the year with H1 seeing anything from flat to up 3% (don’t forget those annoyingly tough comparisons).

H2 should be better with a rise of 3.5-7.5%. Pre-tax profit should also range £785m-£835m.

And how will it achieve this? Through investment in improving its buying processes, and in its fabric and print resources.

The company said Thursday that traditionally, it has begun to develop design themes eight months before the launch of a season. It will continue to work this way but believes that “we can make much better use of the intervening time to improve our fabrics, design details, prints, trims, shapes and prices on long lead-time product.”

In addition to its more traditional buying cycle, it will also develop a small amount of product much closer to the season, using shorter lead time territories and quicker response suppliers.

“This approach to buying is newer and less comfortable for Next, and requires a different mind-set to our traditional techniques. We aim to build on the success we have had with shorter lead-time product and make more of this buying method going forward,” it admitted.

Other developments will come in its Directory offer by speeding up delivery, something it has recently done successfully in Germany and France and which it will now extend to more countries.

It is also investing in its new China ops. The only significant new territory launched last year was China and while sales started slowly operations are now “exceeding our expectations and we believe that China will shortly be one of our top 10 trading territories.”

Next is currently working on a local distribution hub to serve mainland China, Hong Kong, Taiwan and Japan that should be operational within the current year and help it in its aim of reducing mainland China lead times for most of its customers from 14 days to just one or two days.

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