Fashion chain Next is set to see annual profits overtake those of UK high street bellwether Marks & Spencer for the first time in its history after notching up a stellar Christmas sales performance.
The group is now expecting pre-tax profits for the year to January 25 to surge by up to 12.6% after hiking its forecast for the second time in just over two months.
It has joined the list of Christmas retail winners so far after hailing “significantly” better than expected sales, up 11.9% between November 1 and Christmas Eve.
Sales across its stores leapt 7.7%, while it said revenues surged by 21% in the Next Directory catalogue and online division.
Shares in the group leapt to an all time high, rising as much as 11% after it upped its profit guidance and offered cheer for investors as it said it would pay out £75 million in special dividends worth 50p a share and return a further £300 million to shareholders over the year ahead.
Next now has a stock market value of more than £9 billion after seeing shares rise by nearly 50% in the last year, compared with £7.2 billion for its 130-year-old rival M&S.
Its forecasts for a sharp rise in profits will also mean it is on course to make more money than M&S for the first time since it launched in 1982.
It expects to earn between £684 million and £700 million in its full year, up from a previous range of between £650 million and £680 million.
But M&S, which has been hit by falling clothing sales, is predicted to post underlying annual pre-tax profits of about £650 million.
Lord Wolfson, chief executive of Next, said the group was helped by its long-held policy of not discounting before Christmas, while he added festive trading was less volatile this year, despite the wet and stormy weather.
Matthew Taylor, analyst at Numis Securities, said strong management had helped Next overtake stalwart M&S.
“There’s no way Next has a stronger brand than M&S and it doesn’t even have a food business – it’s all about management strategy,” he added.
Next’s expected profit haul will heap further pressure on M&S boss Marc Bolland, who has so far struggled to make headway in turning around the retailer’s fortunes.
M&S reports its festive trading figures next week amid fears of further sales declines in general merchandise and lower profit margins after it resorted to aggressive discounting in the run up to Christmas.
Next said it went into the January clearance sales with 11.5% less stock to shift after its robust festive sales.
It joins rivals Johns Lewis and House of Fraser in celebrating buoyant trade over the period.
John Lewis said like-for-like sales climbed 6.9% over the five weeks to December 28, while House of Fraser hailed its best ever Christmas with comparable sales up 7.3%.
But a shock profits warning from troubled Debenhams earlier this week revealed the pressure on some high street retailers.
Next put its strong Christmas performance down to better ranges of knitwear, nightwear and gifts, as well as an increased confidence in online deliveries seeing shoppers buy over the internet right up until the weekend before Christmas.
Its sales growth marked a sharp pick-up on the 4.3% seen in the previous quarter and last year’s 3.9% festive rise, while it also expects final clearance rates in the January sales to be “marginally” up on a year earlier.
But Lord Wolfson said that trading over 2014 was likely to remain “relatively subdued” and warned that consumer spending would not grow significantly for “some years”.
“People aren’t feeling much wealthier – until we see strong growth in salaries, we won’t see a return to strong consumer sales growth,” he said.
The group also said consumer spending could be held back if the Bank of England moved to raise interest rates.
Next, which currently has about 500 stores, plans to expand its retail space by 4% on a net basis over 2014, while also growing its online offering in the UK and overseas. It plans to launch a site in China this year.
Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said Next investors were being “rewarded” once more with the special dividend, following a gain of more than 45% in the retailer’s share price in the last year alone.
He said: “Management’s reputation for reliable consistent delivery remains thoroughly deserved.
“Product selection, with knitwear this time a winner, is first class, whilst the group’s early adoption of a bricks and clicks business model continues to serve it extremely well – the Directory business has again led the way.”