High-yielding Next outperforms

Retail sales grew 1.7 per cent to £2.2bn and revenue at Next Directory, the online and catalogue business, jumped 12 per cent to £1.3bn, pushing total 'brand' sales 6 per cent higher to £3.5bn. Underlying pre-tax profit, which excludes a big pension credit the previous year, rose 12 per cent to £695m, with an extra £48m from online sales and £12m from new shops making up for a flat year at existing stores. Big savings more than offset rising costs, too. The international retail and franchise business represented just a fraction of group turnover, but still grew nicely, and sales at Next's overseas web business almost doubled to £101m, contributing a third of overall growth at Directory.

Next is making important structural changes in 2014. Moving from a two season buying cycle to a four season model will make matching clothes to the weather much easier. It will also trial a standalone publication, Label, devoted entirely to non-competing non-Next brands, some of which are currently sold through Directory.

And, as promised, the cash-generative retailer is paying another quarterly special dividend of 50p rather than buying back its own shares. A payout in February will be followed by another in May, although Next says it will revert to spending surplus cash on share buy-backs if they offer a better return on equity.

The outlook is bullish, too. Management now estimates 4-8 per cent growth in brand sales for the year to January 2015, and a 5-11 per cent increase in underlying pre-tax profit to between £730m and £770m. Broker Cantor Fitzgerald expects a profit of £760m and adjusted EPS of 366p.