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Most of the key trends are well represented, Next

17 Sep '10
5 min read

July 2010

The emphasis of our space expansion programme has moved away from opening mainline stores (with all products) in new locations. Instead we have focused on extending or moving within existing trading locations and opening new Home stand alone stores. We expect this trend to continue for at least two years. In many of the locations in which we are extending stores we are taking the opportunity to add new products such as sportswear and dedicated shoe shop-in-shops. In the first half we added 18 Sportswear departments and 38 "Shoe Rooms".

Our investment in profitable new space continues to be successful. New mainline space opened in the first half is running in line with forecast sales. Payback on net capital invested in new space is comfortably ahead of our 24 month requirement and forecast at 17 months. The branch profitability of new stores is expected to be 19%. The new Home stores have significantly outperformed our expectations, with sales 31% ahead of plan, net payback at 15 months and branch profitability of 20% is forecast. We plan to open seven new Home stores in the second half.

We have continued our programme of refitting older stores and anticipate spending around £20m on cosmetic refits in the current year, compared to £26m last year. We believe that we will need to spend a similar amount each year on our existing portfolio and this should be regarded as maintenance capex. In stores which are at or near the end of their lease we often negotiate a capital contribution or rent free period in exchange for renewing the lease.

This year we anticipate adding circa 336,000 square feet of trading space.

Retail Profit
Retail profit increased by 9.4% in the half year and operating margin increased by 0.8%.

Net operating margin this year

We increased the bought in gross margin by 0.7% in order to mitigate the effects of the January 2010 VAT increase. Therefore, margin as a percentage of VAT inclusive sales was maintained. Markdown increased as more stock went into the end of season Sale. This was the result of returning to more normal levels of markdown after last year's exceptionally low figure.

Branch occupancy costs rose slightly as a percentage of sales due to some increases in rent and rates combined with negative like for likes. For stores that had a rent review, the majority of which were five yearly reviews, the average annual increase in rent was 2.4%. Store payroll, warehousing and distribution were all managed so that any inflationary cost rises were offset by efficiency gains, and were broadly margin neutral.

Central overheads reduced as a percentage of sales mainly as a result of last year's costs being increased by unusually high performance based staff incentives.

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