Next has reported a third year of falling profits after a “challenging” year in which there was a sharp deterioration in sales and profits at its high street chain.
The retail giant made a pre-tax profit of £722.9m in the year to January, down from £726.1m a year to 26 January. However, there was a stark divide between the fortunes of its stores and home shopping arm: profits at the retail chain slumped by more than a fifth to £212.3m, while its online arm reported growth of nearly 14% to £352.6m.
Its chief executive, Simon Wolfson, a Conservative peer and prominent Vote Leave supporter, said the upheaval around Brexit was not currently affecting consumer spending, although he expects profits to fall again this year, to about £715m.
“Our feeling is that there is a level of fatigue around the subject that leaves consumers numb to the daily swings in the political debate,” Wolfson said. “It appears to us that consumer behaviour will only be materially changed if the UK’s departure from the EU begins to affect employment, prices or earnings.”
Next said the provisional import taxes outlined by the government as a temporary no-deal plan would actually reduce its tariff bill by about £12m to £15m, a saving it would pass on to shoppers in lower prices.
“This saving would arise because the proposed reductions in tariffs from countries outside the EU would be more than offset by any increase in tariffs on goods we currently source from the EU and Turkey,” Wolfson explained.
Overall group sales increased 2.5% to £4.2bn. Sales at Next stores open for more than one year declined by 8.5%. The chain shed almost £170m of turnover to rake in £1.95bn in sales. Sales at its home shopping arm were up nearly 15% at £1.9bn.
“The continuing success of its online and catalogue offering means Next has a significant advantage over its competitors, and continued investment in its online offering will guarantee future success,” said Julie Palmer, a partner at Begbies Traynor.
“However, it is not all plain sailing for this iconic retailer, which is suffering from a double whammy of falling high street sales combined with higher staff wages, which will continue to impact its financial performance. As such, high street store closures are on the cards in the coming year.”