Next offered hope for the battered high street today as it seemed set to hit profit of £1 billion before long and CEO Simon Wolfson said: “It has been a long time since we started a year in a more positive frame of mind.”
With rents down, costs down and inflation falling, there has been a burst of consumer confidence that could be good for Rishi Sunak’s election prospects, though Wolfson, a Conservative life peer, declined to comment on politics today.
With rival mid-market stores such as Ted Baker and Superdry in the mire, both Next and M&S are on the up.
Next made profits of £918 million for the year to January on sales of £5.84 billion. It predicts profits of £960 million for next year and has a habit of steadily increasing the guidance it gives to the City.
Adam Vettese, analyst at investment platform eToro, said: “Next is often considered a barometer of UK consumer sentiment and based on today’s update, consumers are ready to loosen the purse strings. We've heard of many retailers having to contend with disruption to shipping due to geopolitical tension but Next has said this will not be a significant factor. This is good news for shareholders but more importantly Next will continue to funnel cash back to them in the form of dividends and share buybacks as they have done consistently in recent years.”
Wolfson, how has made a habit of acquiring rival brands such as Reiss, Cath Kidston and Fatface, dismissed talk that the mid-market is a near impossible space for retailers.
“I think the ones that aren’t working are just more newsworthy than the ones that are,” he said. “Lots of smaller brands are doing well.”
With M&S also back on the up, and unemployment still low, there is optimism on the high street for the first time in years. Wolfson, who tends to be downbeat, said he is more optimistic than he has been for years, with Covid now in the past.
He said: “On the face of it, the consumer environment looks more benign than it has for a number of years, albeit there are some significant uncertainties,” he said. “It feels like we are now entering a new era.”
Richard Hunter, Head of Markets at interactive investor, said: “The Next engine continues to purr as the group retains its laser focus on identifying growth opportunities in a famously competitive environment. In all, Next has shown its edge again in an environment in which it is seen as something of a bellwether. Its share price performance has also defied odds which have tended to depress the retail sector elsewhere, having risen by 27% over the last year, as compared to a gain of 2.7% for the wider FTSE100.”
Next shares rose 418p to 8927p today, leaving the company valued at more than £11 billion. The stock is up 66% in the last five years and is now at a record high.
The company also plans to expand in the US, Middle East and Asia via new partnerships including a tie-up with US department store Nordstrom and new franchise and licensing deals in India.
John Moore, senior investment manager at RBC Brewin Dolphin, said: “The group’s strong balance sheet means Next is a beneficiary as other brands struggle in the current environment, and we have seen that play out in recent years with its acquisition of a range of well-known peers.”
