* Profit falls for first time since 2009
* Profit forecast to drop again in current year
* Guidance from January warning maintained
* CEO points to "pockets of success"
* Shares rise up to 9.3 pct
(Adds detail, CEO comment, updates shares)
By James Davey
LONDON, March 23 British clothing retailer Next
reported its first drop in annual profit since 2009 and
said it was "extremely cautious" about the year ahead but its
battered shares rose on hopes its management has got to grips
with its problems.
Britain's most successful clothing store chain this century
has faltered over the last two years, saying it is suffering
from a broader slowdown in spending on clothing and footwear
that it first identified in late 2015.
It has also cautioned that sales could be depressed this
year by a squeeze in consumer spending as inflation erodes real
earnings growth, and by price rises on garments due to the
However, its shares rose as much as 9.3 percent on Thursday,
paring year-on-year losses to 38 percent, as investors took
comfort from Next maintaining the guidance it issued in January
when it warned that profit would fall again in 2017-18.
"There are pockets of good news in this set of results,"
Chief Executive Simon Wolfson told Reuters. "One of them is what
happened to the credit customer base, which has definitely
He also highlighted "corrective action" on clothing ranges
that will put them "exactly where we want them to be" in the
third quarter, as well as further work to modernise Next's
Directory online and catalogue business, whose once leading
position has been eroded by rivals such as Marks & Spencer
Analysts have raised concerns about the size of Next's UK
store estate, some 540 stores, and its track record of
underlying sales declines.
However, Wolfson said Next had "stress tested" its store
portfolio and concluded that opening new space was still a sound
strategy - a further 150,000 square feet (14,000 square metres)
is targeted for 2017-18 and 250,000 sq ft in the following year.
"Although the move of spending away from the high street (to
online) will detract from our retail profit, the retail stores
themselves are an enormous asset and the risk is that they
become less productive, not that they become loss making," he
Wolfson also said that pricing pressure should ease in the
second half of 2018, assuming the pound does not devalue again
"It looks like the external economic pain will last into the
first half of next year. When there’ll be a shift back into
interest in clothing is a much harder one to call," he said.
Shares in Next were up 8.3 percent at 4,209 pence at 1233
"(Next's) valuation now offers support, despite the
challenges," said Investec Securities analyst Alistair Davies,
who upgraded his stance from "sell" to "hold".
Others highlighted the surplus cash Next is still
generating, noting four special dividend payments it plans to
make in 2017 give it one of the best dividend yields in the FTSE
Next made underlying profit before tax of 790.2 million
pounds ($990 million) in the year to January 2017, in line with
January guidance but down from 821.3 million pounds in 2015-16.
For 2017-18, Next forecast full price sales, at constant
currency, in a range of down 4.5 percent to up 1.5 percent and
pretax profit of 680-780 million pounds.
It has also highlighted inflationary pressures on its cost
base, including the government mandated National Living Wage,
business rates, apprenticeship levy and energy taxes.
Separately on Thursday official data showed British retail
sales in the three months to February recorded their biggest
slide in nearly seven years.
(Editing by Keith Weir and Ruth Pitchford)