Next cheers retail sector with bumper profits and price drop | Next

Next has said the prices it charges customers are falling, as the fashion and homeware retailer reported bumper profits and pointed to an improving UK consumer backdrop.

The chief executive, Simon Wolfson, said it had been a long time since the group had started a financial year on such a positive note after announcing strong sales and growth results for the year to January.

“The consumer environment looks more benign than it has for a number of years, albeit there are some significant uncertainties,” he said. “It feels like we are now entering a new era.”

The headwinds from cost inflation, rents, business rates, the shift from stores to online, the Covid pandemic and the cost of living squeeze were easing, Wolfson added.

However, the Next boss said he “wouldn’t want to come across as ebullient” or full of “wild optimism” amid a potential rise in unemployment and geopolitical uncertainty.

Next closed a net eight stores during the year, and the three new outlets it will open in the UK this year will be offset by closures, meaning the group’s total retail space will not change.

Wolfson said business rate levels, which are based on historical rental values, were catching up with changes in the market but needed to be updated more often so that on “a declining high street rates are not stuck at levels [businesses] can’t afford”.

Profits were up by 5% to a slightly better than expected £918m, as sales rose almost 6% to £5.8bn. Wolfson said he expected profits to be about £960m this year and for sales to rise by about 6%.

Next’s performance, which drove shares to a record high, was buoyant despite difficulties in the wider clothing market, as shoppers reined in spending on discretionary items to cope with higher energy and food bills.

Some rival brands are struggling for survival, with Ted Baker expected to appoint administrators this week and Superdry searching for new funds.

Wolfson said the negativity about the clothing market was overdone as many brands that were trading well were privately owned and their successes went unremarked.

He said his positive outlook was partly due to wages rising faster than clothing prices. “Selling-price inflation in our own products has reversed, mainly as a result of decreasing factory gate prices.”

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Wolfson added that Next had been able to sell more of its pricier, better-quality items as “there appears to be something of a shift back to investment dressing with customers buying somewhat fewer, slightly more expensive items … In some ways, it is a return to where we were 10-15 years ago.”

Next, which bought majority stakes in FatFace, Cath Kidston and Reiss during the year, would continue to look for opportunities to invest in brands.

The company also plans to expand in the US, Middle East and Asia via new partnerships, including a tie-up with the US department store Nordstrom and new franchise and licensing deals in India.

Next’s sales overseas rose 17% during the year after a 52% increase in sales through third-party online sites such as Zalando.

John Moore, a senior investment manager at RBC Brewin Dolphin, said: “The group’s strong balance sheet means Next is a beneficiary as other brands struggle in the current environment. We have seen that play out in recent years with its acquisition of a range of well-known peers.”

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