Next targets more takeovers as it defies economic turmoil with surging profits

NEXT again showed why it is the king of the high street today with a leap in profits that defy the consumer slowdown and leave it set for more acquisitions of rivals.

Last night Next bought Cath Kidston for £8.5 million, following earlier deals for Reiss, Made.com, Joules and others.

Chief executive Simon Wolfson says he hopes more deals will follow, though he won’t overpay or set targets for how many takeovers will be done.

“It has to be a great brand with (ideally) great management in place,” he said.

He adds: “We are very clear: if we cannot find good quality investments, then there is no shame (and much wisdom) in handing surplus cash back to our shareholders.”

Those shareholders were today basking in a 5.7% rise in annual profits to £870 million on an 8% rise in sales to £5.1 billion.

The shares are up 600% since Wolfson, now Lord Wolfson of Aspley Guise, became CEO in 2001 at the age of 33. The stock opened today at 6204p which values the business at £8 billion.

Next is downbeat about the prospects for the near future, though close watchers of the business say it often is, before later doing better than forecast.

Profits are predicted to fall to £795 million. That is due, says Wolfson, to “the continued cost of living squeeze with prices still rising faster than wages. The least essential items, which includes fashion, are most likely to decrease in sales”.

One piece of good news is that Next is seeing inflation coming down. It was expecting price inflation for the winter season to hit 7%. It should now be 3% as freight costs come down.

Wolfson says Next, like its customers, have spent the last eight years “weathering storms”.

“The Company has endured three considerable shocks: the structural shift in shopping habits from Retail to Online; the pandemic; and now the cost of living squeeze.”

The shift to internet shopping has had the most profound effect on the business, he says.

Charlie Huggins, manager of the ‘Quality Shares Portfolio’ at Wealth Club, said:

"This is another solid performance from the bellwether of the UK High Street, reinforcing Next’s reputation as one of the best run UK retailers.

Many other retailers have struggled in the current environment, but Next’s proposition is clearly resonating with the UK consumer. The removal of pandemic restrictions has certainly helped, leading to a strong recovery in store sales. But this shouldn’t take away from Next’s excellent operational execution.”

In a note on company culture, Wolfson says staff are asked to “be open, honest and considerate in your dealings with others . Life is too short to spend it with people who are unpleasant”.

Chris Beauchamp, Chief Market Analyst at IG Group, said: “To describe Next’s performance as ‘solid’ would be stating the obvious, but a record level of earnings per share underlines the strength of the business. Like all retailers it will be hoping that inflation will continue to abate, and while the forecast is the cautious one we’ve all come to expect, there is good reason to expect a better year for this retail bellwether.”