Next moves upmarket

Still, when compared with other retailers, Next is doing extraordinarily well. Group operating profit soared 19 per cent to £339m, with 2.3 per cent like-for-like growth in the store-based retail division. Retail sales rose 8 per cent to £1.08bn, with profits 23 per cent higher at £152m. That reflected a combination of strong full-price sales and lower markdowns. Meanwhile, directory revenues grew 16 per cent to £694m, but profit only jumped 10 per cent to £172m. The margin weakness was due in part to the sales mix, but also to a growing proportion of customers using cash, rather than credit (on which Next charges interest).

For the first time in many years, the retail business contributed more to growth than UK directory. Finance director David Keens attributed that to additional store space, a successful product range, the improving economy and near-perfect weather conditions.

His priorities for the current year are to improve product and design, develop the retail stores and grow the directory business both in the UK and overseas. He told us Next was focusing on becoming an out-of-town "destination" by building stylish, large-format stores, complete with cafes, rather than the warehouse-style blocks typical of traditional retail parks. Come winter, customers will also see a new premium product range, offering more expensive garments with better-quality fabrics and bespoke printing. "There is now a greater propensity for consumers to pay more for quality and design, and this is an area of the market not well served by the heavy discounters on the one hand and the ultra premium brands on the other."

For the full year, management expects 9 per cent sales growth and 14 per cent profit growth, giving pre-tax profits of between £775m and £815m - up from £695m last year. Kate Calvert at Investec has forecast EPS of 401p, up from 347p.