LONDON (Alliance News) - Next PLC Thursday reported a sixth consecutive year of annual pretax profit growth, as sales increased in its stores and particularly online, but it cut its sales guidance for the current year as it predicted slower growth in international sales due to the issues in Russia and Ukraine and due to tough overall comparative figures.
Next, which last year overtook big rival Marks and Spencer Group PLC to become the UK's most profitable clothes retailer, reported a pretax profit of GBP794.8 million for the year to January 31, up from GBP695.2 million a year earlier, while excluding a GBP12.6 million gain that included a profit on the sale of its investment in Cotton Traders, pretax profit rose to GBP782.2 million from GBP695.2 million.
Revenue grew 6.9% to GBP4.00 billion, from GBP3.74 billion, with Directory sales up 12.1% and retail sales up 4.8%.
It said GBP13 million of the pretax profit growth came from new retail stores, GBP9 million from existing stores, and GBP35 million from additional online sales. It also made cost savings of GBP42 million, but this was offset by a GBP41 million increase in its cost base as a result of higher wages as well as systems investments and other cost increases.
The British fashion retailer raised its total full year ordinary dividend by 16% to 150 pence from 129 pence; the sixth consecutive year that it has grown by 15% or more.
However, it now expects full-price Next brand sales to grow between 1.5% and 5.5% in the current financial, down from the growth of 2.5% to 7.5% it had predicted in December. At that time, it said it expected profit to grow in line with sales, but Thursday said it now expects pretax profit in the current year to grow between 0.4% and 6.7% to between GBP785 million and GBP835 million.
Next said that while the consumer economy remains benign, it is staying cautious on its sales guidance.
"Whilst we are happy with most of our current product ranges, we recognise that some collections are not as strong as they were at this point last year. In addition, during the Spring and Summer seasons, we face very tough comparative numbers from last year, when sales were assisted by unusually warm weather. There is a potential upside in the second half as the comparative performance last year weakens, particularly in the third quarter," it said.
Next also said it expects international online sales to grow 25% in the current year, compared with 61% growth last year. The retailer said this is partly because it has now opened in all its target territories and has limited further opportunities to add local currencies and languages, but also because two of its largest markets, Russia and Ukraine, have both suffered significant currency devaluations. Next said it has had to increase prices in local currency to maintain profitability in these territories and as a result sales measured in sterling are no longer growing.
Next expects to generate around GBP360 million surplus cash in the year ahead to return to shareholders. It already paid a special dividend of GBP74 million in February and has committed to a further GBP90 million which will be paid in May.
Ordinary dividend yield is expected to rise 2.1%, and special dividend yield 3.3% for the full year 2016, and pretax profit is expected to be between GBP785 million and GBP835 million.
"2015 will bring new challenges and opportunities. Our strategy will remain the same, focused on our products, our profitability and returning cash to our shareholders," Chairman John Barton said in a statement.
Next's shares were trading down 3.41% at 7,360.00 pence Thursday morning, having hit an all-time high on Wednesday ahead of the results.
Investec said Next's full-year results came in-line with its estimates but it is surprised by the fashion retailer's cut in guidance. Analyst Alistair Davies says consensus forecasts were predicting fiscal 2016 pretax profit of GBP832 million.
The broker is maintaining its own forecast of GBP833 million for now, and is also maintaining its Hold rating on the stock and 7,000.00 pence price target, saying that the strength of the company's cash generation should underpin the share price longer term, but short term weakness may be expected.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
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Next (NXT)