Although news from the retail industry has been somewhat gloomy of late following a very strong start to the year, clothing and footwear retailers have enjoyed a resurgence in trade thanks to the warm summer weather and higher optimism amongst consumers regarding their personal finances.
This has led to the UK’s second largest clothing retailer Next revising its profit guidance for the full year, indicating that sales will prove to be much stronger than economists initially predicted.
In its latest trading update, the company revealed that first half sales rose by 10.7 per cent, with 2.4 per cent of this lift due to new store openings proving popular with consumers in new local markets.
Existing stores, meanwhile, recorded a 7.5 per cent increase in total sales, defying the prevalent trend in the retail industry for growth to be focused solely on online performance.
As a result, Next now believes that the 5.5 per cent to 9.5 per cent full year growth guidance forecast in April was somewhat cautious. Instead, it has raised and narrowed its forecast, with the guidance range for the full year expected to fall anywhere between 7 per cent and 10 per cent growth.
Although the retailer could feasibly top even this new guideline should the current pace of growth continue, it has been reluctant to lift the top end too far due to factors within the retail industry.
In a statement, it said; “It might appear overly cautious to forecast a full year sales range which is below our current rate of growth.
“However, last year’s first two quarters were hampered by a particularly cold spring and Easter, which presented a soft comparison for this year.”
This is a very valid point, as historically the second half of the year has proven much tougher for fashion retailers despite the traditional sales spike in the run up to Christmas. For this reason, its second half sales growth forecast has remained relatively unchanged, with chief executive Lord Wolfson predicting a rise of between 4 per cent and 10 per cent.
At present, Next operates a portfolio of around 500 branches in the UK and Ireland, along with a relatively new subsidiary overseas business consisting of almost 200 stores. In addition its Directory online and catalogue business has increased its reach and contributed a 16.2 per cent growth rate during the first half.
The predicted pre-tax profit of £775 – £815 million for the 2014/15 financial year means that, once more, Next is set to outperform its closest rival Marks and Spencer.
However, with the rival brand increasingly playing catch up due to the strong performance of its food brand and investing heavily into expanding its clothing and home ware ranges, Next may find itself having to work hard to maintain the lead it achieved for the first time ever this time last year.
Do you think that Marks and Spencer will ever be able to overtake Next again, or has the failure of its clothing range ensured that consumers now turn to Next as the first port of call?
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