Next’s pre-tax profit surged 19.3% to £324.2m in its first half as it experienced its “strongest sales growth for many years”.
Sales jumped 10.3% to £1.85bn in the six months to July 26 and both store and online delivered “significant growth” with revenue rising 7.5% and 16.2% respectively.
The retailer highlighted it was the first time in several years that its retail business had contributed more to the growth of the company than its UK Directory business. It overseas online business is now making a “healthy contribution” to growth and accounts for a “significant share” of Directory growth.
Next brands sales increased 2.3% because of existing retail space and 2.4% because of new space. Meanwhile, UK Directory sales added 3.2% to total sales growth, overseas Directory added 2% and new online branded fashion site Label added 0.8%
Next said it had improved and extended its ranges, opened profitable new space, improved its service and grown its online business. However, the fashion and homewares retailer said the stellar performance was in some part down to external factors.
It said: “An improving economy, low interest rates, increasing availability of credit, less general discounting on the high street and much better summer weather have, we believe, all contributed to an improvement in our sales performance. In addition, an improved housing market has helped our Home business.”
However, it warned: “We remain mindful that some of these factors are likely to be less favourable next year and this year’s fine summer weather could present tough comparatives next year, when interest rates are also expected to rise.”
Next expects to grow 10% in the third quarter and 4% in the fourth quarter, when it faces strong comparatives. For the full year it expects sales to rise between 7% and 10% while pre-tax profit will jump from between 11% and 17% or £775m to £815m.
The retailer returned £223m to shareholders through three special dividends, two of which were paid in the first half. A further £105m has been returned through share buybacks.
Next said it has five focuses for the rest of the year.
1. Improving product and design – Next has started to take greater fashion risks by adopting new trends earlier and in greater depth. However it intends to do more. It also wants to adopt a more ‘fast-fashion’ approach by developing relationships with quick response suppliers.
It has started buying for four distinct seasons to be more weather-appropriate. Next has also stretched its price architecture to include more premium products.
2. Developing its retail stores - tax profit will jump from between 11% and 17%, or £775m and £815m.The retailer is to open more larger format stores, which will account for around 70% of net new space over its current year.
It is also investing in the architecture and external appearance of its stores to “redefine what can be achieved out of town”, moving away from the traditional “shed” format to buildings that reflect the “design aspirations of our product ranges”.
The retailer is in negotiations to expand at least 25 town and city centre stores and will have extended four in the second half.
3. Developing Directory in the UK – The retailer has increased the number of publications to make its Directory more responsive to trends.
The retailer will also shortly be extending the cut-off for next-day-to-store deliveries from 10pm to midnight.
4. Developing Directory Overseas - During the last six months Next began trading online in 11 new territories including Cyprus, Malta, Saudi Arabia, Belarus and China. China has started well and looks like it presents the “most interesting opportunity”, according to the retailer.
The retailer intends to open a local warehouse hub in Northern Ireland to allow it to offer next-day delivery for orders taken before 10pm in both Northern Ireland and most of Eire. The retailer said it will act as a test-bed for further hubs further afield. It will open a second overseas distribution hub during 2015/16; this is likely to be located in Eastern Europe.
5. Developing Label – Next said its branded website and publication Label had been successful.