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Next beats Xmas gloom with 3.1% sales rise

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While shareholders of many retail firms may be nervously awaiting Christmas trading updates, investors in fashion and furniture retailer Next can today enjoy another market beating sales performance.

Although store sales struggled in the period between August 1st and December 24th 2011, dropping 2.7 per cent year-on-year, strong online and mail-order trading over the five months helped overall retail sales rise 3.1 per cent, according to results published this morning.

Next’s directory channel, which includes website sales, saw trading grow by 16.9 per cent compared to the same period last year and have now risen 16 per cent year-on-year since the firm’s financial year started at the end of January.

In a half-year trading update published in September, the retailer announced that profits were 8.5 per cent ahead of where they were the previous year but profits are now expected to be up four per cent for the full-year.

A profits guidance range of £7 million either side of £565 million should deliver an earnings per share of around 11 per cent for the firm’s investors, and Next reaffirmed today that this was its primary measure of success at present.

Neil Saunders, Managing Director of retail analyst group Conlumino, commented: “Overall this is a good performance from Next, albeit against pretty weak comparatives from last year.

“That said, this is clearly a game of two halves with strong growth in Directory sales compensating for weak numbers from stores.”

With heavy snow affecting sales in the run-up to Christmas last year, Next has admitted that festive trading was a disappointment in 2011, and has warned that continuing problems in the Eurozone and further unemployment and pressure on consumer spending will make 2012 difficult.

It expects inflation to fall back this year however and thanks to efficient stock management and cost control it intends to keep its own selling prices stable throughout 2012.

Director of analysts at consultancy Retail Remedy James McGregor argues that Next’s multichannel approach has also been key to its resilience.

McGregor said: “Next was one of a handful of high street retailers that saw the potential of multiple channels, such as online and its Directory, and loyalty in those areas continues to grow.

“The Next group has remained a strong player within a depressed market because it continues to listen to its customers and reacts well to a dramatically changing retail landscape.”

Modest growth in overall sales and profits is anticipated for next year by the retailer, with £200 million in surplus cash pencilled in to be returned to shareholders through share buybacks, which represents solid gains during what is expected to be a difficult 12 months.

Saunders added: “That Next has been able to deliver overall growth in a price sensitive market without resorting to discounting is impressive. Improvements in assortment, ranging and merchandising and strong own labels have all helped create aspirational, must have product for which consumers are willing to pay full price.

“In the long run we believe that Next is a Christmas winner not just because it has delivered sales growth, but because it has delivered it profitably and largely at full margin.”

Published on Wednesday 04 January by Editorial Assistant

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