High Street cast into gloom by Next alert

Retail giant Next sent alarm bells ringing across the High Street today when it warned that sales in August and early September had been “disappointing”, which prompted shares to fall 7%.

The sales slowdown at the fashion and homewares retailer took the City by surprise as it has been one of the retail sector’s most reliable performers during the consumer downturn, although there was no change to Next’s full-year profit guidance.

This followed Next delivering double-digit profit growth in its first half to July, as its online and catalogue business continued to power ahead.

Lord Wolfson, chief executive of Next, said the Olympics had led to lower footfall in stores and damped trading online, as had the “unusually warm” weather over recent weeks. “Generally, we think it [the Games] was not good for clothing or online. People were engaged watching TV rather than ordering online,” he said.

While shares in Next have soared this year, they tumbled by 240p to 3339p today.

Its comments on trading had a knock-on impact on rivals, with Debenhams and Marks & Spencer falling by more than 2%. Neil Saunders, the managing director at Conlumino, said: “Next is likely to have fared comparatively better than others over the period.”

Lord Wolfson also suggested that footfall on the High Street had been hit by more people booking holidays abroad after the rain earlier in the summer. “The country did feel quite empty in the last two weeks of August and first week of September,” he said.

Next, which has 536 stores, grew pre-tax profits by 10.2% to £251.3 million over the half-year to July 28, 4% ahead of City forecasts. Saunders described the figures as “resilient against a tough economic climate and this summer’s unseasonable weather conditions”.

Next’s total revenues grew by 4.8% to £1.64 billion, as flat retail sales in stores were offset by online performance. Next Directory grew its profits by 22.1% to £137.7 million, on sales up 13.3% to £551.7 million. After a small trial, Next is to roll out its online service to same-day, Sunday and evening deliveries across the UK by November, as well as extending the deadline for next-day delivery to 10pm.

Lord Wolfson struck a cautious note on consumer spending ahead of the quarter including Christmas. He said: “It is likely that inflation will continue to rise faster than earnings [wages] for some time, and as long as it does, the consumer economy will remain subdued.”

Next raised its interim dividend by 12.7% to 31p a share.