LONDON (Alliance News) - Homeware and clothing retailer Next PLC Thursday reported higher profits and revenues for its recent financial year, driven by its online business.
Next signalled its confidence by raising its dividend by 23%, but said it expects the UK consumer environment to remain far from buoyant.
"We are marginally more positive then this time last year," Chief Executive Simon Wolfson told journalists after the results Thursday.
Although the retailer said the consumer economy steadily improved over the course of the last year, it remained fairly cautious on the UK consumer spending outlook, citing risks to real income and interest rates rising again as risks dampening the recovery.
Next, which has a core market range of between 25 years old and 45 years old, said it is targeting brand sales growth of between 4% and 8% in the current financial year, with a pretax profit of between GBP730 million and GBP770 million.
"We are budgeting more positively for next year," said Wolfson.
For the year ended January 24, Next increased its full-year dividend by 23% to 129 pence, in line with earnings per share growth, which rose to 366.1 pence, up from 297.7 pence a year earlier.
Revenue excluding VAT increased 5.4% to GBP3.74 billion, up from GBP3.55 billion the prior year, and profits excluding exceptional costs rose 12% to GBP695.2 million, up from GBP621.6 million a year earlier, when excluding a GBP44.9 million profit gain.
Next's main profit and revenue drivers during the year was the addition of net retail space, an increase in costs savings which more than offset cost inflation, and more importantly an increased profit from its online and catalogue business called Next Directory.
Next Directory delivered a 12% increase in sales during the year, narrowing the gap with its retail stores, which grew by 1.7%.
It said that Directory active customer numbers increased by almost 11% during the year to 3.7 million, with growth coming from UK credit, UK cash and overseas customers.
The retailer has been busy developing its online business, by improving its UK delivery service sexpanding its online product offer and investing in new overseas markets.
"We continue to make good progress developing our internet business overseas. All overseas sales are currently serviced from our UK warehouses through third party distribution networks," it said.
Next is set to launch its China website this year, a new territory for the group, although Wolfson said that the company is just as interesting in the prospects of smaller territories, one of which is Hong Kong. This year the retailer said it also plans to improve pricing abroad, site translations and develop in other new territories, including Brazil, Belarus and Saudi Arabia.
"We see China as significant for us, in say, 20 years, but right now there are other opportunities too," said Wolfson.
However Wolfson said that with revenue of just over GBP100 million from its online business overseas it would be a "mistake to over-emphasise its importance" right now.
"We will continue to grow the UK online business modestly, and then internationally. Internationally, it will take a while for its to be a material part of the business," said Wolfson.
Next also said that its franchise business, with partners operating 173 stores in 35 countries, continued to grow both sales and profits during the year.
"We are budgeting for international retail to make a profit of GBP14 million in the year ahead," the company said.
Total retail sales from its stores were 1.7% ahead of last year, of which new space contributed 3.1%.
Next said full-price sales grew by 2.9%, while markdown sales were down 11%, as a result of stock for its big end-of-season sale being 15% lower than the year before, due to a last minute sales surge immediately before the summer and winter sales. However, Next said its expects markdown levels to return to "more normal levels" in the year ahead.
During the year, the retailer increased trading space by 280,000 square feet or 4%, largely from extending and re-locating in existing trading locations. However the number of stores barely changed, after it opened 11 new stores, but closed 10 smaller less profitable shops.
The group's Home business, which sells homeware and furniture, and is naturally driven by improvements in the UK housing market, now accounts for 18% of total revenue for the group, and in the last six years has doubled its trading space.
Wolfson said he believes the uplift in the UK housing market is sustainable, and is therefore confident in its Home business.
For some years now Next has sold non-competing non-Next brands through its Next Directory business, although it has now launched a standalone website called Label, which exclusively stocks third party brands featured on Next Directory, including fashion brands Warehouse, Lipsy and Diesel.
"Label is a trial, and the extension of a business already running, and most of the brands in Label are already in Directory. We will know whether it has been successful in around six month time," said Wolfson.
Next's profits in the financial year just ended, is expected to have overtaken older rival Marks and Spencer Group PLC for the first time, having overtaken its rival in terms of market capitalisation for the first time in 2012. M&S is expected to report a pretax profit of around GBP628 million for its financial year ended March 2014.
Next shares were trading 1.7% higher Thursday afternoon, at 6,689.00 pence per share.
By Rowena Harris-Doughty; rowenaharrisdoughty@alliancenews.com; @rharrisdoughty
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