* 2013-14 pretax profit 695.2 mln stg, up 12 pct
* Profit greater than that forecast for Marks & Spencer
* Sales 3.74 bln stg, up 5.4 pct, driven by Directory
* Forecasts 2014-15 sales up 4-8 pct, profit up 5-11 pct
* Shares rise 2 pct
(Recasts with CEO, analyst comment, shares)
By James Davey
LONDON, March 20 Britain's economic recovery is
being driven by an unsustainable pick up in consumer borrowing
which could be derailed by higher interest rates, according to
the head of retailer Next, a prominent supporter of the prime
minister's Conservative Party.
Simon Wolfson made his comments as Next, Britain's
second-biggest clothing retailer, reported a 12 percent rise in
annual profit to 695.2 million pounds ($1.2 billion), driven by
booming sales at its online business - a figure likely to top
that of rival Marks & Spencer for the first time.
Data and surveys have shown an improving outlook for UK
consumer spending, which generates about two thirds of gross
domestic product. But some retailers remain wary.
"Whilst the economy is getting better, we need to recognise
that last year's growth was driven very much by credit and that
that can't go on forever," Wolfson told Reuters on Thursday.
"Until we see significant increase in the supply side of the
economy - profitable investment and improved productivity - we
cannot bank on a return to sustained growth," he said.
Wolfson, who sits in Britain's upper house of Parliament,
said he was encouraged by recent data showing little or no
decline in real earnings. But he was concerned by the prospect
of an interest rate rise later this year dampening the consumer
economy as well as house price inflation getting out of control.
"My big concern is, particularly in the south east (of
England) where people have borrowed a lot of money on their
homes, is that people have got used to very low interest rates
and any rise in interest rates will come as something of a
shock," he said, adding: "Asset bubbles are never productive."
Espirito Santo Investment Bank analyst Tony Shiret reckons
Next, which also sells homewares, is the UK clothing retailer
most exposed to customers with mortgages.
"This is clearly a risk that should be discounted in some
way. Yet we get no sense that this is on the investment
watch-list for this company," he said.
On Wednesday, UK finance minister George Osborne delivered
his annual budget, courting voters ahead of a national election
in 2015 with promises of help for savers, tax breaks for
manufacturers and lower beer and bingo levies.
MORE PROFIT THAN M&S
Shares in Next, which have risen 61 percent over the last
year, were up 2 percent to 6,705.25 pence at 1045 GMT, valuing
the company at about 10.4 billion pounds.
The firm trades from over 500 stores in Britain and Ireland
and almost 200 stores in more than 30 countries overseas, as
well as via the Directory internet and catalogue business.
Its pretax profit of 695.2 million pounds for the year ended
January 2014 compares with Next's own guidance of between 684
and 700 million pounds, analysts' consensus forecast of 695
million and 621.6 million made in the 2012-13 year.
Sales, excluding VAT sales tax, rose 5.4 percent to 3.74
billion pounds, driven by new space and online growth. Directory
sales grew 12.4 percent, while store sales rose 1.7 percent.
Analysts expect Marks & Spencer, Britain's biggest clothing
retailer, to make a pretax profit of 628 million pounds in its
2013-14 financial year.
Next's underlying earnings per share (EPS) rose 23 percent
to 366 pence, boosted by share buy-backs and its dividend was
increased 23 percent to 129 pence - a fifth straight year that
EPS and dividend have grown by over 15 percent.
The firm forecast sales growth of 4-8 percent in its 2014-15
year, with pretax profit rising 5-11 percent to 730-770 million
pounds and total shareholder returns of 10-16 percent.
Next paid a 50 pence a share special dividend in January and
will pay another of the same amount in May. It has pledged to
distribute surplus cash through special dividends as long as its
share price remains above 6,245 pence. If it falls below that
figure the firm may revert to a share buyback programme.
($1 = 0.6014 British Pounds)
(Editing by Kate Holton and Mark Potter)