UK: Next FY weathers "perfect economic storm"
UK clothing retailer Next has seen its profits jump by 18.4% during 2011, despite a "perfect economic storm" in which "anaemic" consumer demand combined with rising input costs and higher VAT.
Profit after tax climbed to GBP474.8m (US$750m) for the year ended 31 January. Revenue increased 1.5% to GBP3.5bn over the year, with sales up 4.3%. Growth was driven by the Next Directory and Next International divisions, which recorded sales growth of 16.4% to GBP2.2bn and 13.4% to GBP76.3m, respectively.
Next said it maintained its operating margins despite a "significant increase in manufacturing costs".
"We worked to re-source product from new, cheaper sources of supply and negotiated hard with our existing supply base," the company said.
"But this was not enough to completely offset underlying cost increases and, rather than compromise quality, we passed on some of this cost inflation in the form of 7% higher selling prices.
"Stocks were managed tightly and in line with our budget, we did not discount in the run up to Christmas and we improved clearance rates in our end of season sale."
The company is cautious in its outlook for the year ahead, which remains "very uncertain." It expects brand sales to rise 1-4% over the first half, retail is likely to be flat to a decline of 3%, and directory is expected to grow by 9-12%.
For the full-year, it is forecasting that profit before tax will be in the range of GBP560-610m.
The results justified Next's decision to resist unplanned discounting "at a time when much of the high street was on permanent sale," said Conlumino analyst Neil Saunders.
"In many ways, Next's figures are a microcosm of wider trends in the retail sector: sales through physical stores are under significant pressure while online is continuing to show good growth," he added.
"In our view Next's ability to manage these two trends is sound and it now operates a successful multichannel model where both online and store complement each other; indeed, the growth in customers using both channels for collection and return is notable.
"That said, although the majority of stores remain profitable at the moment, if the divergence between online and physical continues - which we believe it will - some re-engineering of the store portfolio will likely be required over the medium term."
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