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Fashion retailer Next ups profit forecast range

January 03, 2014 (United Kingdom)

Sales in the fourth quarter have been significantly ahead of expectations. Sales for the year to date are now +1.25% ahead of the top end of the guidance given in the October Interim Management Statement.

The last and first weeks are distorted by the fact that Christmas fell a day later this year. So the week commencing 22 December benefits from an extra day, but week commencing 28 July excludes a day.

Profit and EPS Guidance for the Full Year to 25 January 2014

A strong fourth quarter has meant that sales are now ahead of the top end of previous guidance. As a result it is raising profit forecast range, which is now £684m to £700m.

During the year we have purchased and cancelled 6.2 million NEXT shares, at a total cost of £296m. The combination of profit growth, share buybacks and a lower corporation tax rate should result in growth in underlying EPS of between 21% and 24%.

Outlook for the Year Ahead

The step-up in Christmas trade was mainly down to improvements in our seasonal knitwear, nightwear and gift offer. In addition, increased confidence in online deliveries meant that more customers continued to trade with NEXT Directory right up to the weekend before Christmas.

It is therefore very unlikely that the strength shown in this quarter will continue through the first half of the new financial year, and of course this year’s success will present difficult comparative numbers in the fourth quarter next year.

As far as the consumer environment is concerned, it seems likely that the economy will continue to steadily improve with strong employment numbers driving a general recovery.

However, the problem of little or no growth in real earnings looks set to persist for some time, and we cannot see any reason to expect a significant increase in total consumer spending in the year ahead. We are also wary that any return to significant economic growth is likely to result in rising interest rates which, in turn, is likely to moderate spending of those with mortgages.

Budgets for the year ahead are based on growth in NEXT Brand sales of between 3% and 7%, and expect profit before tax to be up broadly in line with sales. Will give more detailed guidance with our full year results, which it intends to announce on Thursday 20 March.

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