Annual sales, profits surge at Next

(Sharecast News) - High street stalwart Next posted above-forecast earnings on Thursday and flagged an "encouraging" start to the year, despite heightened geopolitical tensions. The retailer saw total group sales jump 10.8% in the 52 weeks to January end, to £7bn, while pre-tax profits were 14.5% stronger at £1.16bn, ahead of analyst expectations for £1.15bn.

Driving trade was a strong online performance. Retail stores group sales sparked 2.4% at £1.89bn, while UK online sales surged 10.2% at £2.8bn. Next said it had benefited from an improved product offering as well as growth in its international business.

Chief executive Simon Wolfson said: "Last year was exceptional.

"A good year in a retail business is gratifying, but also daunting. Ultimately we are measured against our own performance last year: the better the year, the tougher the competition."

Looking to the current year, sales in the first eight weeks of the year are "encouraging" in the UK, Next said. Overseas, the retailer noted sales had been "strong" up to the point war broke out in the Middle East. The region accounts for around 6% of group turnover.

Next said it had already accounted for around £15m of additional costs likely to arise from the conflict. These have been offset by savings elsewhere, however, and so do not affect guidance.

Next maintained its conservative guidance for full-price sales growth of 4.5% but nudged its profit outlook upwards. It now expects annual pre-tax profits of £1.21m, around £8m more than guidance provided in January.

Wolfson said: "Looking forward, we have not yet reached the period of unusually strong UK trading we experienced last year, and perhaps more importantly, instability in the Middle East may continue to restrain growth in that region.

"It is also likely to have a knock-on effect on costs, selling prices and consumer demand in the rest of the business."

However, Wolfson also acknowledged Next was "not well placed' to make predictions about the longer-term implications of the conflict.

Shares in the blue chip jumped following the results, and by 1400 GMT they had put on 6% at 12,780p.

Richard Hunter, head of markets at Interactive Investor, said: "The numbers underling the group's unparalleled understanding of the market in which it operates and its ability to capitalise on new opportunities, such as the potentially exciting international business."

Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: "While some caution is wise, Next has developed a track record of under-promising and over-delivering in recent years. And as a leader in the UK market, it's well-positioned to navigate challenging conditions better than many of its peers.

"Alongside overseas growth potential, strong cash flows and impressive shareholder returns, it remains a long-term pick for investors looking for exposure to the retail sector."

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