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Next shares soar despite first drop in profits for eight years

Total sales at Next fell by 0.3pc, hit by a 4.6pc slump in full-price shop sales
Total sales at Next fell by 0.3pc, hit by a 4.6pc slump in full-price shop sales

Next, the former high street darling, has suffered its first fall in profits since the recession and warned that it is “extremely cautious about the year ahead”.

The FTSE 100 retailer said that it had been battling a “combination of economic, cyclical and internal factors working against us” that had dragged the company’s profits lower and would continue to prove challenging in 2017.

Next profits

Despite the gloomy outlook, investors shrugged off the results, sending the retailer's shares soaring 9pc in morning trade to £42.37.

The company posted a 3.8pc drop in pre-tax profits of £790.2m for the year to the end of January. As a result of the bleak outlook Next has said it is anticipating another fall in profits and expects to make between £680m and £780m this year.

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Lord Simon Wolfson, chief executive, highlighted a shift in consumer spending “on experiences and away from things”, which dragged high street clothing sales down 0.3pc while sales in restaurants rose 11pc.

Lord Wolfson
Lord Wolfson

Lord Wolfson, who has become as well known for his views on the economy as for running the UK’s biggest clothing retailer, stressed that he expected “a continuing squeeze on real incomes in the year ahead”.

Next revealed it had already raised shop prices by 4pc to offset the higher import costs from a weaker pound.

The bellwether retailer, which has 538 shops, revealed that total sales had fallen by 0.3pc, hit by a 4.6pc slump in full-price shop sales. Total retail sales were down by 2.9pc to £2.3bn.

The group’s Directory business - long seen as the engine driving its growth- also suffered a lacklustre year with its own-brand sales down by 1.8pc. However, this was offset by its growing business selling other brands, which lifted its Label sales by 18.9pc and boosted total Directory sales by 4.2pc to £1.7bn.

Retail sector analysis

Next attributed some of its weakness to a reshuffle of its buying operations, which means it can respond to fashion trends faster but at the expense of omitting “some of our best-selling, heartland product from our ranges”.

The retailer also revealed that it bore a £41m increase in costs, including a £22m hit from the cost of implementing the National Living Wage. It also made £42m in savings, with the bulk coming from reducing management and staff incentives. Next said it expects a further £36m increase in costs again this year as it absorbs wage rises, the apprenticeship levy, and energy taxes.

Separately, Next confirmed chairman John Barton would be succeeded by non-executive director Michael Rodney, after 15 years with the business.

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