Next sees profits fall in 'challenging' half year

Retailer Next has blamed challenging trading conditions for the fall in sales in the six months to July period. Comparable sales were down 0.3% from the same period a year ago, mainly due to a subdued performance in the retail division.

Profit before tax was 1.5% lower at £342.1m ($453.1m), but revenue was up 2.6% to £1.96bn.

In a statement, Next said trading conditions since July had remained "challenging and volatile", but maintained its sales and profit guidance for the full year.

"It has been a challenging year so far, with economic and cyclical factors working against us, and it looks set to remain that way until mid-October at the earliest," it stated.

Comparable sales at High Street shops were down 0.7% despite new trading space contributing 3% to growth, while sales at the Directory arm were up 5.4%.

Next attributed the strong performance in Directory to improved stock availability, enhanced website functionality and continued growth in its fashion website Label.

'Difficult environment'

The retailer said that it would increase its net trading space by 350,000sq ft this year, despite subdued performance in the retail division.

"At a time when retail sales are moving backwards, it may seem counterintuitive to be adding new space," the company said.

"Our view is that, in a difficult trading environment, taking new space is one of the few ways to mitigate losses from negative like-for-like sales."

Next, which operates more than 500 stores, said the weak pound will not impact its earnings until spring 2017, as it has already covered all its currency requirements until then.

"All other things being equal we would expect cost prices to rise by 5% in 2017," it added.

The retailer said that it enjoyed strong sales in July, but this was helped by a larger than normal end-of-season sale.

"Next's stock for the end-of- season sale was up 30% on last year which increased both footfall and sales," it noted.

"Trading since July, which to some extent may have been affected by the sale, has remained challenging and volatile.

"We are maintaining our full year sales guidance but expect to have a clearer picture of trading conditions at the beginning of November when we announce our third quarter sales."