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Next surprises market with better than expected first half sales

Category : Business

Despite retail gloom, company sees rise in both retail and Directory business

After all the talk of wet weather dampening consumer spirits and central London becoming a ghost town thanks to the Olympics, the City had been expecting the worst from Next.

So it came as a surprise that the retailer beat its target for first half sales growth and raised its full year guidance from profits of £560m-£610m to £575m-£6720m.

It said retail sales rose 0.2%, compared to expectations of flat numbers at best and a drop of 3% at worst. Admittedly much of this came from adding new store space, with lower sales from existing outlets.

And the real boost came from its online and home shopping business, where the poor summer encouraged consumers to use Next Directory, where sales rose 13.3%.

Overall, first half sales climbed 4.5% compared to forecasts of a 1%-4% increase and a 1.4% rise in the first quarter. The news sent Next shares soaring 5.5%, up 174p to £33.93, making it the biggest riser in the FTSE 100. Analyst Bethany Hocking at Investec said:

First half sales growth of 4.5% is significantly better than our estimate for 1.9%. Our current 2013 profit forecast is £593m, which is based on +2.5% brand sales growth. We expect to upgrade these forecasts.

What is also encouraging is that the beat comes from both retail and Directory, not just the latter, which should go some way to silence bears’ fears regarding the store estate. We remain very happy buyers of Next – this statement is further evidence that Next is outperforming peers and gaining market share.

Ahead of the US Federal Reserve statement later and the European Central Bank and Bank of England meetings on Thursday, investors have regained some of Monday’s enthusiasm that action to ease the eurozone crisis could be taken. The FTSE 100 is up 35 points at 5670.28, although the scope for disappointment is clearly there.

The market has also, perhaps strangely, been lifted by disappointing Chinese manufacturing figures. The idea seems to be that the poor data will encourage more action from the country to stimulate the economy. Mike McCudden, head of derivatives at Interactive Investor, said:

Equities are enjoying a bounce this morning after Chinese PMI data disappoints and triggers a fresh round of stimulus chatter. As this talk has been doing the rounds for some time now so we should expect markets to settle in to a state of limbo ahead of key US employment data and the Fed statement this evening. The gamblers out there will be hoping the Fed goes against the grain and announces another round of QE earlier than anticipated.

Overall, the underlying story controlling these markets remains in the eurozone as we wait and see if bold talk becomes coordinated action.

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