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Next invests online as it adjusts to a new economic reality

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Next today reported a rise in sales and profits – but chief executive Simon Wolfson forecast “patchy rain for the foreseeable future” as consumers adjust to a a new economic reality away from the pre-credit crunch norm in which “individuals, businesses and government lived beyond their means.” Setting out its own strategy for profitable growth, Next made investment in its online business a key priority. That investment would include making delivery more convenient and expanding further overseas.

Reporting its first-half results the multichannel fashion retailer said sales rose by 4.8% to £1.64bn in the six months to the end of July, compared to the same period last year, mainly thanks to growth in the largely-online Directory business. Next’s store-based retail business saw sales grow by 0.2% to £1.009bn while its Directory sales grew by 13.3% to £551.7m.

Pre-tax profits rose by 10.2% to £251.3m over the period. Store-based profits rose by 0.2% in the period to £122.7m, up from £122.5m at the same time last year while Directory profits rose by 22.1% to £137.7m.

The growth in Directory profits, said Next , was compensating for a fall back in like-for-like sales in existing stores. “The decline in like for like sales cost the company £18m of profit,” said chief executive Lord Wolfson, “but new profitable space added £14m and growth in online sales added a further £26m.” The business is to invest in online by introducing new delivery options, including same day, evening, Sunday and next day to store while raising last order times to 10pm for next-day delivery.

Wolfson also said Next would continue “the rapid expansion of our profitable international online business,” which grew sales to £24m compared with £15m last time. By the end of the year it expects to sell online 61 countries, including South America, and forecasts sales of £52m and profits of £10m. In contrast, Next owns or operates as a joint venture 23 stores in seven countries and its international franchise partners run 160 stores in 31 countries.

He also said it was working to the rule that investment in new online business must be profitable, with the target of a 20% return on investment in recruiting new customers.

The company’s other strategic aims include developing the Next brand, especially at the “aspirational end of our collections” and investing in profitable new space such as its Home and larger concept store formats. New openings are expected to return the capital invested in two years, along with profits of 15%. The company also said it would control costs and return cash to shareholders.

Looking ahead, Next said full-year profits would be up by between 0.8% and 8.7%.

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