January 3, 2013 / 7:41 AM / in 5 years

UPDATE 2-Better margins a bonus for Next as Christmas sales rise

* Raises 2012/13 profit forecast to 611-625 mln pounds

* Nov 1-Dec 24 total sales up 3.9 pct

* Next Retail sales up 0.8 pct, Directory up 11.2 pct

* Sees 2013/14 profit growth in line with sales growth of up to 4 pct

* Shares up 2.3 pct

By James Davey

LONDON, Jan 3 (Reuters) - Next, Britain’s No.2 clothing retailer, nudged its full-year profit forecast higher after an increase in sales over the Christmas period was supplemented by improved margins due to a renewed attack on costs.

Shares in Next, which has a long-standing policy of never going on sale before Dec. 26, rose 2.3 percent on Thursday, topping the FTSE 100 leader board, after it forecast profit growth in both the 2012/13 and 2013/14 years even though it expects the consumer environment to stay subdued.

With Britain facing a possible triple-dip recession, many retailers have been finding the going tough as consumers fret over job security and a squeeze on incomes.

“I think it is getting slowly better in that the difference between inflation and wages is narrowing and I think will probably continue to narrow,” chief executive Simon Wolfson told Reuters.

“But certainly for the rest of 2013 I still think real incomes will drop, albeit at probably a lower rate than they fell last year,” said Wolfson, a supporter of Britain’s ruling Conservative Party, who sits in the upper house of Parliament.

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

On Wednesday, John Lewis, Britain’s largest department store group, posted record Christmas sales, driven by stellar online trade. That performance was mirrored on Thursday by upmarket grocer Waitrose, which is also part of the John Lewis stable.

Kicking off the post-Christmas retail reporting season for listed companies, Next said total sales, excluding VAT sales tax, rose 3.9 percent in the Nov. 1 to Dec. 24 period.

That compared with an increase of 2.7 percent in its third quarter, giving a year to date rise of 3.9 percent - in line with guidance of 3.0-4.5 percent.

Sales at Next’s over 500 stores in Britain and Ireland rose 0.8 percent in the November, December period while sales at the Directory home shopping, internet and catalogue business increased 11.2 percent.

Although sales were in line with internal expectations, cost control measures, markdowns and gross margins were all slightly better than expected, the firm said, adding that its post-Christmas Sale had started well.

Wolfson said a host of costs, such as in warehousing, distribution and store operations, had come in below budget. Further cost savings have been identified for the 2013/14 year.

Next now expects a year to end-Jan. 2013 pretax profit of 611-625 million pounds ($995 million-$1.02 billion), up from previous guidance of 590-620 million pounds.

It forecast earnings per share growth for 2012-13 of 14-17 percent, partly reflecting a 241 million pounds share buyback.

Shares in Next, up 38 percent over the last year, were up 84 pence at 3,856 pence at 1122 GMT, valuing the business at 6.2 billion pounds.

“Next remains our top pick of the FTSE 100 Retailers, a core sector holding underpinned by a flexible store base and the benefits of Directory,” said Peel Hunt analyst John Stevenson, who raised his 12-month target price to 4,000 pence.

For the 2013-14 year the firm guided to sales growth of 1.5-4.0 percent, with profit up in line with sales and a further 250 million pounds of share buy backs.

“International and online will continue to grow and we will continue to open profitable new space,” said Wolfson, flagging 250,000 square feet for 2013-14, with new space skewed to the home area.

He said Next was not seeing any rise in the cost of its spring/summer stock, a lot of which has already been purchased.

“So we can say that with some certainty there will be zero inflation in the price of spring/summer stock in like-for-like product.”

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