Next rescued by catalogue and internet sales

Catalogue and internet sales came to the rescue of Next today after the fashion chain endured a worse-than-expected time on the high street.

Total sales for the five months to Christmas Eve rose 2.8%, but this masked a 6.9% drop in like-for-like sales at the group’s shopfront business.

Next Directory sales were up 9.3%, while profitability was further aided by strong cost controls and less stock going into the post-Christmas sale.

The company said that annual profits were likely to be slightly higher than City forecasts, with a figure of between £463m (€687m) and £473m (€703m) now expected for the year to January 27.

Next’s mixed performance came as privately-owned House of Fraser and New Look reported strong trading in the run-up to Christmas. In the autumn there had been fears that retailers were heading for a disastrous festive season.

While Next shares made progress in the wake of the update, analysts described the extent of the sales decline on the high street retail side as worrying. Most commentators in the City had been braced for a drop of between 5% and 6%.

New store space meant overall high street sales gained 0.8% in the period.

Philip Dorgan, of Panmure Gordon stockbrokers, said: “The sales performance is very poor and most key indicators are not pointing in the right direction. Since 2003, Next has doubled sales area, but profits have only increased 55%.

“Something is not right and it could be that the brand is not stretching across the expanded product range and that the format is not appealing to new customers and is growing old with its customer base.”

Hopes of an improvement are likely to hinge on the introduction of a new store format, as well as additional advertising and promotional support.

It is the second year in a row that Next’s post-Christmas profits guidance has surprised on the upside.

Analysts pointed out that Next was one of the few retailers to still be selling at full-price in the final week before Christmas. Management is also likely to have taken a conservative stance on stock levels.

The company said in a trading statement today: “In a challenging year, we will have increased group profits through good control of stocks, margins and costs, along with a strong sales performance in Next Directory.”

Trading updates are expected next week from Marks & Spencer, JJB Sports, HMV and Sainsbury’s.

Howard Wheeldon, senior strategist at broker BGC, said: “2006 appears to have ended a better year than many expected just a few months ago, but watch out for management warnings about 2007 being a difficult year.”

House of Fraser, which was recently taken over by a consortium led by retail investment group Baugur, said like-for-like sales grew 7.3% in December. The performance included its best ever week in the days before Christmas.

And New Look said like-for-like sales increased by 3.2% in the 14 weeks to December, helping total sales to jump by 26% on a year earlier.