Next emerges as Christmas winner with sales up 12%

Britain’s second-largest clothing retailer, Next, is on track to generate bigger profits than Marks & Spencer for the first time after seeing a surge in sales before Christmas, reports The Guardian.

Shares in the retailer jumped nearly 10 per cent to a record £60.80 as it said strong sales of knitwear, gifts and nightwear and booming internet trade had lifted sales “significantly ahead of expectations”. Just 12 months ago, the shares were changing hands at £39.05.

The group shrugged off fears that the festive season had been tough for clothing stores with a 12 per cent rise in sales in the period from 1 November to 24 December compared with the same period a year before.

Next held out against a wave of discounting by rivals in the final trading days before Christmas, but doubled its pace of growth online from the previous quarter and experienced its strongest underlying growth in stores since the summer of 2002, according to analysts at Bernstein.

In light of that storming performance, Next raised its pre-tax profit forecast for 2013 by about 4 per cent to a range of £684m to £700m, putting it well ahead of the City’s expectations for the much bigger Marks & Spencer, which is expected to make an annual profit of £650m.

Next’s stock market value climbed to nearly £2bn more than Marks & Spencer as it announced that a special dividend of 50p a share would be paid to shareholders in early February, at a cost of £75m. The company is planning to distribute a further £300m in 2014 via share buybacks and special dividends.

Next’s healthy Christmas numbers come after John Lewis and House of Fraser reported a seasonal sales surge, boosted by performance online.

Out in the cold is Debenhams, which issued a profits warning and parted company with its finance director after disappointing sales.

Attention is now turning to Marks & Spencer. Like Debenhams, the group slashed prices in a last-minute attempt to woo shoppers in the days leading up to Christmas, raising fears that the high-street stalwart could also miss its profit targets.

A poor Christmas for Marks & Spencer, which reveals its festive trading figures next week, would pile more pressure on the chief executive, Marc Bolland, who is trying to turn around years of poor clothing sales.

Analysts said that Next’s strict policy of not discounting until the clearly defined start of its sale on Boxing Day was something other retailers should take heed of and had clearly not affected its ability to take market share.

Neil Saunders, at the retail analysts Conlumino, said: “This is one of the reasons why Next is a festive winner in terms of both sales and profits.”

Simon Wolfson, the chief executive, said Next had performed well partly because of shoppers’ growing confidence in ordering online for delivery to homes and stores, which helped the company capitalise on a late surge in sales this year.

But he said sales had mainly been lifted because Next had got its ranges right this year, particularly on womenswear, after a not so sparkling year in 2012. “We had a good season and a lot of ranges were better than the previous year.”

Lord Wolfson warned that the retailer’s strong performance was unlikely to continue in the first half of 2014 and sounded a warning about confidence among cash-strapped consumers.

“The consumer hasn’t had an awful lot more to spend. Looking forward, the environment will be better, just not a lot better,” he said.

“Although we have seen a return to economic growth and the credit squeeze on consumers is abating, earnings are not keeping up with inflation and so we are not expecting a return to the boom times.”

On a day when Nationwide revealed that house prices rose by 8.4 per cent in 2013, Next sounded the alarm over a potential rise in interest rates adding further pressure on household incomes.

“We are also wary that any return to significant economic growth is likely to result in rising interest rates which, in turn, is likely to moderate spending of those with mortgages,” the company said.

The City took heart from Next’s performance as it awaits a flurry of Christmas trading reports over the coming weeks. The supermarkets Tesco and Sainsbury’s and the online grocer Ocado are scheduled to reveal trading figures next week.