Next chief executive Simon Wolfson said he expects no double dip recession or a “meltdown in consumer spending” as he issued half-year results.
Next posted a 15% rise in profits to £213m for the six months to July. Wolfson, who caused consternation when he last updated with gloomy comments about retail prospects,reassured: “Next does not expect a double dip recession nor do we anticipate a meltdown in consumer spending, not least because overall employment levels are holding steady. However, we are expecting very little in the way of growth in total consumer spending for the foreseeable future.”
He said that while prices would rise by between 5% and 8% for Spring 11, because of increased cotton prices and input costs, Next was not unduly worried by the prospect.
Wolfson said: “We will be able to mitigate some pricing pressure through alternative sourcing, robust negotiation and some product engineering…Price rises are likely to moderate demand to some extent, but we think the effect is unlikely to be dramatic.”
He added that Government cutbacks would not be so big as to “derail the economy” but would be enough to “subdue any potential growth in consumer spending”. Wolfson pointed out that consumer spending was unlikely to be driven by growth in consumer credit because shoppers were focused on saving money and unable to borrow as much as previously.
Wolfson said that there are still opportunities for growth, particularly through new space expansion and said that like-for-like sales would no longer be a “sensible” way to measure performance. Next expects to add 336,000sq ft of new trading space this year and will continue its strategy of relocating or extending stores in existing locations, as well as opening Next Home standalones.
He said: “The outlook is balanced, not good, but not very bad either. We will have to adapt to a new type of consumer environment, one in which like-for-like sales growth is likely to be low for some time and top line growth will need to come from other opportunities. We believe it is sensible to view this environment as the new normal.”
Next’s half-year sales rose 5% to £1.58bn over the period, when like-for-like sales fell 1.5%.
Retail sales excluding VAT clim,bed 2.2%. This period was boosted by 0.9% because of a reporting difference, which meant the first half started a week later than the previous year.
Profit growth outstripped sales partly because of strong margin management. For its store ranges it achieved gross margin rose 0.4% while for its Next Directory ranges, it achieved gross margin improved 1.2%.
Next said it had been particularly encouraged by its performance in kidswear and that it was more confident “than for some time” about the fashion content of its womenswear ranges. “Most of the key trends are represented” for autumn, it added.
The retailer said: “Going forward, there is more we can do to maximise the potential of best selling lines, with more colourways and greater depth of buy on these items.”