Next remains strong, more confident than ever as it targets UK and US growth

Next’s results for the year to 27 January on Thursday showed — as if we didn’t know — that the business remains one of the most successful and well-run in the UK fashion sector.

The owner of Next, Joules, Cath Kidston, Reiss and more said that “in the context of the wider economic environment”, the year was a “very good” one for it and it “materially outperformed our initial expectations” as profit before tax rose to a record high of £918 million. That was up 5% and £3 million ahead of the guidance given in January, mainly on the back of better-than-expected clearance rates of sale stock in that month. 

Looking at the results in more detail, total group sales rose 5.9% to £5.842 billion, and statutory revenue rose 9.1% to £5.491 billion. Next Trading full-price sales rose 4% and total Next Trading sales rose 3.3% to £5.317 billion. Online sales were up 5% to £3.16 billion and sales through its Retail division (that is, stores) were flat at £1.865 billion.

We’ve already mentioned the pre-tax profit figure, excluding amortisation of acquired brands, which is how the company will be reporting in future. Statutory profit before tax rose 16.9% to £1.016 billion. But profit after tax was actually down 2% at £702 million, dented by various one-off issues. 

Online profitability rose 11% while Retail profitability was up 2%.

For the year ahead, the company expects underlying full-price sales growth of 2.5% and total group sales including subsidiaries should be up 6%. Group profit should rise 4.6% to reach £960 million.

A good start to the year

While much of the fashion retail sector has its head in its hands given the huge challenges being faced at present, Next actually said that “it has been a long time since we started a year in a more positive frame of mind”. Last year was much better than it expected and it entered the current financial year with “new avenues of growth along with a cost base that feels under control”.

That comes after heavy investment in its operations as well as learning that its business model needed to adapt as retail changed. The lessons it took were about the ongoing strength of its brand, the importance of building exceptional infrastructure and how rigorous financial discipline was vital. 

And it’s interesting — given its heavy focus on an aggressive move to sell third-party brands and its direct acquisition of many outside labels — that it said the Next brand remains the jewel in its crown.

So what are its ongoing priorities for the year ahead? Given the importance of its core brand, delivering more newness, greater breath of design and improved quality for the Next label, as well as leveraging and extending its product skills to develop products that “reach beyond the natural boundaries of the brand”. 

Developing its Total Platform retail tech offer is key too, and it expects this to contribute £77 million of profit to the group, or 8% – up from zero three years ago.

Also important to it is to focus on overseas development, which clearly offers a huge opportunity to a company that’s primarily UK-focused for now.

The company on Thursday said its Online overseas business has made good progress with sales up 17% (or 14% currently-neutral) and net margins improving from 8.6% to 13%. It has improved its full-price sales with overseas third-party aggregators too and these grew by 52%.

It said awareness of Next is increasing in some markets, perhaps boosted by AI-driven search engines on third-party websites accelerating the visibility of the brand, and sales growth on third-party aggregators show no signs of abating. Encouragingly, in most countries its direct-to-consumer business is also increasing. 

Other actions made to increase overseas sales include the recent opening of a warehouse and distribution hub in the UAE. 

Aiming to crack the US

But it said that success in Asia, the Americas and Australasia remains elusive with most territory sales only level with 2019/20 and two of them down.

It’s been looking at alternative ways of serving such markets because the logistics of serving them from the UK aren’t easy.

Next sees the franchise/wholesale model as the most advantageous in such markets and following a very encouraging trial is actively working with Nordstrom in the US. It has also agreed terms with a second major US retailer and is in active discussions with several others. Additionally, it’s close to finalising a franchising and licensing agreement for Next in India and is in very early stage conversations for similar arrangements in other Asian territories.

So what did analysts think of it results? Julie Palmer, partner at Begbies Traynor, said: “It was always clear this high-street stalwart would have strong momentum going into the new year, but the 5% increase in profits is way ahead of the competition and shows it really is a ‘sink or swim’ market.

“The strategy of buying up on-the-rocks retailers like Joules and Cath Kidson is clearly working and the fact that it is managing to improve sales figures both online and at brick-and-mortar stores is no mean feat.”