October 31, 2012 / 7:36 AM / 5 years ago

UPDATE 2-Next held back by slowing online sales growth

* Q3 total sales up 2.7 pct

* Q3 Retail sales up 1.1 pct, Directory sales up 5.6 pct

* Sees FY sales growth of 3-4.5 pct

* Sees FY pretax profit of 590-620 mln stg

* Shares fall as much as 1.9 pct

By James Davey

LONDON, Oct 31 (Reuters) - Next, Britain's No.2 clothing retailer, reported a slowdown in sales growth at its online and catalogue business, whose stellar performance has helped it to avoid the worst of a downturn in consumer spending.

Shares in the firm, up 40 percent over the last year, slipped 1.9 percent on Wednesday as the slower growth at the Next Directory business offset news overall sales had recovered from a slow start to the third quarter, allowing the firm to edge up the bottom end of guidance for the full year.

Many British retailers are finding the going tough as consumers hold back spending in the face of inflation, meagre wage increases, and government austerity measures.

British retail sales picked up more than forecast in October, a survey showed on Tuesday. However, one published on Wednesday said UK consumer confidence fell to its lowest in six months in October, highlighting the fragility of Britain's recovery from recession.

Next has generally defied the gloom, helped by its strong online offer, a constant stream of new store openings and diversification into homewares and overseas markets.

Third-quarter retail sales rose 1.1 percent, having been up 0.2 percent in the first half, while Next Directory sales rose 5.6 percent, having increased 13.3 percent in the first half.

"Given that Directory had seen double-digit sales growth for six consecutive quarters, we expect this to slightly disappoint," said Investec analyst Bethany Hocking.

Next attributed the Directory slowdown to the annualisation of delivery improvements made last year and chief executive Simon Wolfson said investors should not by alarmed.

"The view we've always taken is that what counts is the overall number, and although Directory is worse than in Q2, retail has actually got better," he said.

BEING CAREFUL

Next, which trades from over 500 stores in the UK and Ireland and 200 stores in over 30 countries overseas, said its total sales rose 2.7 percent in the 13 weeks to Oct. 27, taking year-to-date growth to 3.8 percent.

That compares with first half growth of 4.5 percent and previous guidance for full-year growth of 2-4.5 percent.

With Next expecting its fourth quarter sales to increase in line with the year-to-date rise, it narrowed its full-year sales guidance to growth of 3.0-4.5 percent.

Last month Next had said sales in August and early September had been disappointing.

Wolfson blamed the slow start to the quarter on unhelpful weather and the distraction of the Olympics rather than any further deterioration in the lot of the UK consumer.

He said sales were stronger in late September and early October, though trading was "volatile" and in late October had been distorted by a later half-term school holiday.

"The economy is subdued but not in trouble and the same could be said of the consumer," Wolfson, a prominent supporter of Britain's ruling Conservative Party who sits in the upper house of Parliament, told Reuters.

"There's a little bit less fear of unemployment around but at the end of the day growth in real income is still marginally negative, people are being careful," he said.

The firm is now guiding to a full year pretax profit of 590-620 million pounds ($949-997 million), from 575-620 million pounds previously, representing growth of 3.5-8.7 percent on 2011-12. It forecast growth in earnings per share of 10-15 percent after an expected share buyback of 200 million pounds.

Shares in Next were down 0.1 percent at 3,590 pence by 1140 GMT, valuing the business at about 5.9 billion pounds.

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