Strict cost controls and expansion into new formats and online platforms resulted in fashion and furniture retailer Next increasing its profit before tax by 8.5 per cent for the first half of its financial year.
An interim management statement released today shows revenues grew 3.6 per cent year-on-year in the six months ending July 2011, and profits beat many expectations by totalling £228 million.
Next has increased its store selling space by almost 200,000 sq ft since January and trialled a new garden centre format despite the challenging trading conditions which CEO Lord Wolfson described as a “perfect storm” for retailers.
“On the buying front we experienced the first concerted rise in cost prices for nearly twenty years,” Wolfson explained.
“This, combined with rising VAT, increased Next selling prices by around seven per cent. In a normal environment price rises would have supressed demand, but the consumer economy has been anything but normal.”
Add to the mix inflation in fuel and food, government cuts and tight control of consumer credit, and Next’s performance looks all the more impressive.
Its domestic stores sales declined 1.8 per cent on the same period last year but a strong increase of 15.1 per cent in directory trading and almost double digit growth in international business meant overall retail sales improved.
Retail profitability grew 0.2 per cent in the period, with store payrolls down as a percentage of sales, a reduction in air freight costs and increased selling space offsetting cost prices and VAT increases.
Changes to its buying process has improved stock availability and negotiation potential for its clothing segment, whilst in homewares Next has used the difficulties in this market to pick up additional retail space at knock-down prices.
Lipsy, the trader’s youth brand, saw trading profit plummet however from £1.1 million last year to just £200,000, with Next blaming student fee rises and difficult job market.
Earnings per share rose 18.6 per cent to 98.3p and its interim dividend jumped ten per cent year-on-year to 27.5p per share.
Looking forward, the retailer expects Next brand sales to be up between two and 4.5 per cent up in the full-year, group profits to improve by 0.4 to 8.7 per cent, and earnings per share to be better by 7.5 per cent to 16.4 per cent compared to the previous 12 months.
Wolfson added: “Early indications are that retail headwinds are likely to ease as we move into 2012.
“We have strong evidence that there will be little or no inflation in our own prices and it seems probable that other inflationary pressures will ease as commodity price rises begin to annualise in the first quarter of 2012.”