Next Directory picking up the slack

Fashion retail chain Next said the year to the end of January finished well after 2011 had presented the retail sector with 'the perfect economic storm'.

Revenue rose to £3,506m from £3,454m the year before, ahead of market expectations of sales of £3.4bn. This was despite the core Retail chain - the High Street shops - seeing revenue ease 1.4% to £2,191m from £2,222m.

The online and postal business, Next Directory, more than picked up the slack, growing sales by 16.4% to £1,089m from £936m the year before. The International division also had a good year, growing the top line by 13.4% to £76.3m from £67.3m the previous year. Next Directory now accounts for 32% of group sales and 44% of operating profits.

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Underlying profit before tax from the continuing business climbed 5.0% to £570.3m from £543.4m the year before, and this too was ahead of expectations; the market had pencilled in a figure of £566.3m.

Next Retail's profit eased to £323.7m from £328.8m the year before. The Directory division's profits grew to £262.6m from £221.9m in the previous year.

Given that the Directory division is outshining the water-treading Retail division, Next felt compelled to state: "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. We continue to see more and more Directory customers using our shops to receive and return our products."

The group's net operating margins were maintained despite a significant increase in manufacturing costs, the group noted, as it sought out cheaper sources of supply and negotiated more favourable terms with existing suppliers, while also passing on a proportion of increased raw material costs to customers.

The full year dividend has been increased by 15% to 90p, in line with the growth in earnings per share (EPS), but the final dividend will be paid a month later than usual to coincide with the peak in Next's summer trading cash flows. Underlying EPS rose 15.1% to 255.4p from 221.9p the year before.

"There is some important good news for the consumer. As expected, inflation has begun to fall and looks set to ease further. So by the third quarter consumers should see their incomes rising broadly in line with prices - a welcome end to deflation in real earnings. Inflation in our own prices has also evaporated and selling prices going forward will be in line with those last year," said Lord Wolfson, Chief Executive of Next.

"Our plan for the year ahead is similar to the approach taken last year. We anticipate that underlying retail sales will remain negative but that we can continue to move the top line forward (albeit modestly) through the addition of profitable new space and the continued development of the NEXT Directory," Lord Wolfson added.

Lord Wolfson said it is too early to give a full year forecast on sales, but the group is budgeting for Next Brand sales to be up by between 1% and 4% in the first half. Retail sales are seen showing anything from no change to a 3% year-on-year fall in the first half, while Directory sales are tipped to rise between 9% and 12%.

"It is worth noting that the growth in the first quarter's sales is likely to be lower than the second, as last year's first quarter was boosted by an exceptionally warm Easter and the Royal Wedding. Last year growth in the first quarter was 5.2% but in the second only 1.3%," Lord Wolfson revealed.

"The year ahead looks no less challenging but the group is well prepared and has further opportunities for growth. We remain strongly cash generative and have every chance of delivering another year of increased sales and earnings per share," Lord Wolfson concluded.

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