Next gets warm weather, Royal Wedding boost

Updated: 2011-05-04 19:02
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LONDON - Next, Britain's No. 2 fashion retailer, raised its guidance after first-quarter sales beat expectations, boosted by exceptionally warm weather over Easter and spending ahead of the Royal Wedding holiday weekend.

Shares in Next, which runs over 500 stores in Britain and Ireland as well as the Directory home shopping business, rose nearly 5 percent after the firm said on Wednesday total sales increased 5.2 percent over the 13 weeks to April 30.

That compared with its guidance for first-half sales that ranged from a drop of 0.5 percent to a rise of 2.5 percent.

"Even without the effect of the good weather I think we would have been at the top end of our own forecasts but the weather's definitely adding at least 2.5 percent," Chief Executive Simon Wolfson told Reuters.

Met Office climate figures for April 2011 show that the month was the warmest on record with many parts of the UK seeing temperatures 3 to 5 degrees warmer than normal.

That encouraged shoppers to spruce up summer wardrobes earlier than usual, while the Royal Wedding was also a fillip.

"A lot of people had parties or events to go to so inevitably they will have bought a new outfit to wear," said Wolfson.

Sales at Next's stores rose 0.9 percent, while Directory sales soared 14.8 percent, also benefiting from better ranges and a "next day delivery" marketing campaign.

The firm raised its guidance for first-half sales to growth of 1.5-4.0 percent, adding that gross margins and costs remained well controlled and in line with internal budgets.

Despite the sales uplift, Next said it remained cautious on the outlook for 2011 as there had not been a significant change in the underlying economic environment.

It forecast full year sales growth of 1-4 percent, which would give pretax profit of 535-585 million pounds ($881-$963 million). After 160 million pounds of share buybacks EPS was forecast to be 6 percent more than the growth in profit.

"Overall this is an excellent outcome ... but investors should not confuse this with a sign that the consumer environment has changed," said Singer Capital Markets analyst Matthew McEachran.

Next shares, which had risen 11 percent over the past month, were up 105 pence at 2,325.5 pence at 0903 GMT, valuing the business at 4.13 billion pounds.

The read-across for rivals Marks & Spencer and Debenhams

was positive, with their shares up 3.1 percent and 3.5 percent respectively.

A raft of British retailers have issued profit warnings over the past month as the economic outlook has darkened. Consumers are worried about government job and welfare cuts, inflation, muted wage growth, a stagnant housing market and the prospect of higher interest rates.

Retail sales were better than expected in April, a survey by the CBI business lobby found on Tuesday.

Retailers have also faced significantly higher input costs, such as rising commodity prices, especially cotton, and wage rate inflation in the Far East.

Next, along with retailers such as Debenhams and Marks & Spencer, has been passing on the higher input costs to customers, with average selling prices up about 6 percent so far this year.

This contrasts with rivals such as Primark and Hennes & Mauritz which have not done this.

Next said it expected price rises of about 8 percent in its second half, with inflationary pressures easing towards the end of the year.

($1 = 0.6072 pound)