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Next in line for a good full-year profits rise

Clothing retailer Next has lifted its full-year profit hopes after warm weather and the royal wedding bank holiday encouraged spending.

The high street giant, which has suffered from mediocre sales since a dismal Christmas season, said consumers brought forward summer purchases and helped lift total sales by 5.2% in the 13 weeks to April 30.

However, Next, which has more than 500 stores in the UK and Ireland, warned it did expect the current levels of growth to continue into the second quarter and remained cautious as consumer spending is squeezed. The company said it now expected pre-tax profits for the full year to be between £535m and £585m, around £15m ahead of the guidance given in March and above market expectations.

Next, and the wider retail sector, has been hit by a slowdown in consumer spending this year, as the Vat hike from 17.5% to 20% and soaring input costs squeeze household incomes.

In its last update in March, Next chief executive Simon Wolfson warned: "Things are likely to get worse before they get better."

But the picture has improved for the retailer as online sales soared 14.8% and retail increased by 0.9%, all excluding VAT.

The company said sales were driven by better ranges and improved stock availability, particularly in womenswear.

Next Directory - its online outlet - has benefited from more aggressive marketing and improved delivery services, the company added.

It now expects combined retail and online sales to be up by between 1% and 4% for the full year, up on the guidance issued in March.

Looking ahead, however, Next remains cautious.

The company said: "The combined effects of the public sector deficit cuts and continued inflation in essential commodities are all likely to restrain growth in consumer spending generally."

Next said it continued to expect price increases to be marginally higher in the second half than in the first, at around 8%.

Matthew McEachran, retail sector analyst at Singer Capital Markets, said that Next turned in a "much better performance than expected" in the first quarter.

He said:"Overall this is an excellent outcome, and the shares should edge up today, but investors should not confuse this with a sign that the consumer environment has changed."

Next said it had "consciously avoided" direct reference to like-for-like sales in today's update because as a measure for underlying consumer spending it is distorted by VAT and online sales.

The company said like-for-like sales could have ranged between minus 3% and plus 5.4%.