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Next unveils rising profits – and optimism – amid high-street gloom

Clothers retailer’s profits rise more than 8% and chief executive forecasts that inflationary pressures will start to ease

Next provided a rare ray of sunshine for the battered high street when it reported a rise in profits and chief executive Lord Wolfson forecast an easing of inflationary pressure next year.

Retailers have been hammered by the rising cost of raw materials, but Wolfson said the bursting of the cotton bubble and lower oil prices would help trading in 2012.

Next recorded profit up more than 8% at £228m in the first six months, driven by a strong performance from its directory business, which includes catalogue and online sales. The international arm also did well.

Wolfson said average selling prices had risen 7% as Next passed on higher costs to customers, which “suppressed demand” and led to a 5.8% fall in like-for-like sales in shops. But the overall performance thrilled the City and the shares were the biggest riser in the FTSE 100, up more than 6% at £24.83.

Wolfson said: “We experienced the first concerted rise in cost prices for nearly 20 years. This, combined with rising VAT, led to an increase in selling prices. Discretionary spending has been further squeezed by inflation in food and fuel, tight control of consumer credit, cuts in government expenditure and broadly stagnant wages.”

The international side of the directory business was the star performer, with full-year online sales outside the UK expected to triple. Within Britain, online sales rose more than 10%, “with much of the growth driven by the general trend towards shopping online”.

A further deterioration in European sovereign finances represented “the biggest unknown risk” to Next’s business, Wolfson said. “There’s a chance it could happen … It’s not going to be good news, but on the other hand it’s unlikely to dramatically affect the fundamentals such as inflation and employment. [But] it almost inevitably would put a further squeeze on lending in the UK.”

Wolfson conceded any recovery in spending would be slow, but said it seemed reasonable to believe that by the second quarter of next year Next would begin to see an improved consumer environment.

Having negotiated a third of its prices for spring 2012, Next is confident there will be little or no inflation in its selling prices in the first half of next year.

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