LONDON -- "Next has made a better than expected start to the year."
That's the first line of the clothing retailer's interim results statement, and it's hard to disagree. Sales were up 5% to 1,640 million pounds, with Next Directory again accounting for pretty much all the increase. In fact, Next Directory is now the most profitable part of the business, having overtaken the retail stores.
These figures cover the period ending July 31, but the performance since then hasn't been as good. This seemed to be reflected in the share price, with the shares down 5.5% at 3,366 pence in early trading, giving back part of the gains made since the start of August. Next said:
We remain cautious about the economic outlook. Disappointing sales in an unusual August and early September reinforce the wisdom of this conservative approach ... If the economy had a weather forecast the outlook would be overcast -- patchy rain for the foreseeable future. In the run up to the credit crunch individuals, businesses and government lived beyond their means. It will take some time to work our way back to affording the lifestyle to which we became accustomed.
Reflecting the tougher road ahead, Next's central forecast is for profit before tax to be 27 million pounds ahead for its full year, having achieved 23 million pounds of that in the first six months. Overall, Next is anticipating profits for the full year to be between 575 million pounds and 620 million pounds, the same as previously predicted. This means Next currently trades on a forward P/E of just over 12 with a prospective yield of 3.0%, which still seems to offer decent value for a business that rarely seems to put a foot wrong.
Its store expansion plan continues, although Next noted that recent progress had been slow. Its current floor space amounts to 6.5 million square feet and it expects to add 0.25 million square feet over the course of both this and the next financial year.
Next's comments on Sunday trading, which has proved controversial in many circles, are also worth highlighting:
Our experience of opening extended hours on Sunday was generally positive. Given the unusual trading patterns during the Olympics the data is very hard to interpret. On balance, our view is that additional trading hours will be most beneficial on the busiest Sundays. It was notable that we had no difficulty in finding volunteers for the additional hours of work, which were appreciated by many as an opportunity to increase earnings. We would welcome some relaxation of Sunday trading laws, particularly in the run up to Christmas when shoppers are most pressed for time.
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