Shoppers’ passion for fashion sees Next put up profit forecasts again

Nick Goodway
4 Nov 2009

Next's chief executive Simon Wolfson told the City to upgrade its profit forecasts for the second time in just two months today, after what he called a “better than expected third quarter.”

Seven weeks ago analysts were told to raise their forecasts for the fashion firm's pre-tax profits from £400 million and settled on an average around £442 million.

Today Wolfson said that they could add £30 million to that figure, lifting their forecasts to £472 million which is 10% ahead of last year's total of £429 million.

Next shares, which have more than doubled in the last 12 months, rose another 81p to 1891p today.

“The consumer is being pretty sensible,” said Wolfson. “Inflation and mortgage rates remain encouragingly low and unemployment, while still a risk, is not preying on everyone's mind. They are not splurging out but they are still spending as much as they did last year and saving more.”

He said one area where Next had seen a marked change was in bad-debt provisions and the number of customers in arrears at its Next Directory business — a sure sign, according to Wolfson, that consumers are getting their personal finances under control.

October saw a “noticeable pick up in sales” which he said was partly due to comparisons with the same month last year when the full effects of the credit crisis and collapse of Lehman Brothers really hit the High Street.

But Wolfson also takes some credit from his own efforts to up Next's game in the fashion stakes.

He said: “We are making decisions later and changing fashion trends — whether they be narrow lapels or padded shoulders — more quickly. It is also key that this is not just in young fashion but right across the ranges.”

Same-store sales fell 1.3% in the three months to the end of October, but if internet sales are included they actually rose by 2.2%

At Next Directory sales rose by 5.1% in the quarter, which Wolfson said was largely due to a much better range of homewares and stock availability to service demand.

In September Next said that second-half, same-store sales could fall by as much as 6.5% after a 1.2% decline in the first half.

Today it massively upgraded that forecast, saying that same store sales could actually be flat and at worst show only a 3% decline.

Meanwhile, at Next Directory, nil to 2% growth has been raised to 4% to 6% growth.

Wolfson is cautious about claiming that he is taking market share from his rivals saying that he does not fully trust the industry's figures.

He also said his fears over the effect of the weak pound on Next's buying power — and therefore its profit margins — had been slightly overdone.

Clothes are generally priced in dollars and euros by manufacturers and wholesalers but Next has managed to negotiate significant reductions in costs to counter the weakness of the pound.

As usual, Next will be one of the first major High Street names to update investors on how it fared over Christmas with its next trading report on 6 January.