LONDON (Alliance News) - Next PLC on Thursday reported growth in profit in its recently ended financial year, as it grew sales in both the directory and retail businesses, but said that 2016 will be a challenging year due to an uncertain global economic environment and changing patterns in consumer spending.
Shares in Next were trading down 12% at 5,885.00 pence on Thursday morning, the worst performer on the FTSE 100.
The fashion and homewares retailer said pretax profit in the year to January 30 grew to GBP836.1 million from GBP794.8 million the year before, as revenue rose to GBP4.18 billion from GBP4.00 billion.
By division, sales in the online and catalogue business Next Directory increased by 8%, while sales in the store business Next Retail were up by 1%. Full price sales demonstrated growth of 3.9%, above the 3.5% guidance issued at the beginning of the year.
Within Next Retail, net new space contributed 2.4% to sales growth, Next said, with full price sales up by 2.2%. Net trading space increased by 275,000 square feet, while store numbers remained broadly the same with the increase from new stores being offset by the closure of smaller, less profitable stores.
Next had 540 stores at the end of January, up just one from 539 stores a year before.
Next expects to add a further 275,000 square feet of net trading space in financial 2016-17 and a further 350,000 square feet in financial 2017-18.
Net retail margin grew to 16.9% from 16.3% in the year, despite property commitments rising faster than sales, thanks to the buying teams over-achieving against their target margin in the spring and summer seasons, assisted by better currency rates, Next added.
However, Next said it expects retail margin to in the year ahead to be lower than last year due to rising branch payroll costs and negative same-store sales.
Within Next Directory, full-price sales grew by 6.5%, driven by UK brand LABEL. Sales in the overseas business grew by 20%, while active customers increased by 11% to 4.6 million.
During the second half of the year, the directory business suffered from poor stock availability as consumers switched to buying more stock from the mid-season "New-In" brochures and less from the large seasonal catalogues.
In order to address this, Next has increased the directory's overall stock holding in spring and summer, while re-writing its stock ordering systems for autumn and winter to allow more accurate allocation of its buy budget in favour of items in the "New-In" publications.
Next also noted that while sales in Next Directory continue to grow strongly, growth has slowed in the UK due to competitors catching up with its delivery and warehousing capabilities and because of a change in the way customers shop online.
As a result, Next is working to improve the directory's user interfaces, catalogues and marketing, delivery service and credit.
For financial 2016-17, Next warned that the outlook for consumer spending does not look "as benign" as it was this time last year. "The year ahead may well be the toughest we have faced since 2008," said Chief Executive Simon Wolfson.
The retailer noted that while UK employment is at a record high, growth in real earnings slowed markedly from September last year. Next also believes there may be a move by consumers away from spending on clothing towards eating out, travel and recreation.
As a result, it is revising its guidance for the year ahead.
Pretax profit is now expected to be between GBP784 million and GBP858 million in financial 2016-17, while total full-price sales are predicted to be between a decline of 1.0% and growth of 4.0%.
Next has in the past set guidance at the start of each year that it then has gone on to raise and exceed.
At the start of financial 2016, Next provided a full-year pretax profit guidance range of between GBP785 million and GBP835 million. In July, it raised this to between GBP805 million and GBP845 million, before raising it again to between GBP810 million and GBP845 million in October.
In January, Next said it expected the figure to be GBP817 million based on the same 52-week period as the prior year, but said this may increase or decrease by GBP7 million depending on trade in January, while an additional GBP15 million should also be achieved due to the current financial year comprising 53 weeks, instead of 52 weeks.
All this compares to the final figure for the year of GBP836.1 million.
Next will pay a total dividend of 158 pence for the recent year, which is a 5% increase on the prior year.
"2016 will be a challenging year with much uncertainty in the global economy. For Next it makes it particularly important that we remain focused on our core strategy of delivering long term sustainable growth in earnings per share, investing in the business, improving the design and quality of our products and returning surplus cash to shareholders," Next Chairman John Barton said in a statement.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
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