Next shows resilience with UK sales rise

Next, Britain's second-biggest fashion retailer, posted first-half sales towards the top end of company guidance, boosted by its online and home shopping business and showing resilience against a tough consumer backdrop.
The firm, which runs over 500 stores in Britain and Ireland as well as the Directory home shopping business, kept its full-year profit forecast on Wednesday, and predicted pressure from rising costs, like higher cotton prices, would ease next year.
Britain's retailers are mostly struggling as shoppers face rising prices, subdued wages growth and cutbacks in government spending. Clothing chains have faced an extra challenge from rising raw material costs, although a dip in the price of cotton in recent months have raised hopes that will soon improve.
Next, which battles in the mid-market with sector leader Marks & Spencer (M&S) , said total sales rose 3.2%, excluding VAT sales tax, in the 26 weeks to July 30.
That compares with a company forecast of a rise of 1.5-4% and first-quarter growth of 5.2% — an outcome boosted by exceptionally warm weather over Easter and spending ahead of the Royal Wedding holiday weekend.
First-half sales at Next's stores fell 1.7%, while Directory sales leapt 15.1%.
Last month M&S reported flat non-food sales for the 13 weeks to July 2.
Arden Partners analyst Nick Bubb said Next's figures were sound enough but he cut his rating on the shares to "neutral" from "add," saying they had already risen recently and are trading at a higher multiple of forecast earnings than M&S, which he believes has greater medium-term growth prospects.
Next said its full-year profit forecast remained in line with previous guidance before adjusting for the sale of its customer services business Ventura last month.
The firm is forecasting a pretax profit of 527-577 mln pounds, excluding Ventura, implying a range of down 3% to up 6.2% on the 2010-11 result.
It forecast basic earnings per share of 230-250 pence, assuming 225 mln pounds of share buybacks.
Next expects cost price inflation experienced in the first half to continue into the second half at broadly the same rate of up 8%.
"The combination of a sharp reduction in cotton prices, an easing of manufacturing capacity constraints in the Far East and the annualising of this year's VAT increase all mean that selling prices are unlikely to rise further for Spring 2012," it added.
Next shares, which have risen by a fifth over the last six months, closed at 2,362 pence on Tuesday, valuing the business at about 4 billion pounds.