Next cautiously optimistic

Although Next still says UK growth will remain sluggish, that's a far cry from chief executive Lord Wolfson's prediction a year ago that "retailing will feel like walking up the down escalator." Certainly some of the challenges faced by the sector in 2011 seem to be easing – inflation is starting to fall and job security is rising which, according to a number of independent surveys, is persuading shoppers to start spending again. "We are seeing the first signs of an 'upgrade cycle' in consumer confidence," said analyst Caroline Gulliver at broker Espirito Santo, pointing out that lower inflation, rising wages and falling mortgage and loan payments could add 3 per cent to household discretionary spending this year.

Even so, Next still expects underlying sales growth in its retail channel to remain negative, although, like last year, that will be more than offset by strong growth in its directory business – which includes online sales – and the addition of another 300,000 square feet of retail space, including more standalone homeware stores, which accounted for half of the 402,000 square feet of space opened last year. While retail operating profits were essentially flat in 2011, directory profits climbed 18 per cent to £263m, which meant that overall operating profits climbed 5.6 per cent, with operating margins steady as cost saving initiatives and price increases offset significant manufacturing cost increases. Underlying EPS climbed at a faster rate thanks to £290m of share buybacks, and the group expects to return as much as £200m of surplus capital to shareholders this year.

Broker Seymour Pierce expects underlying pre-tax profit of £599m and EPS of 258p for end- year-January 2013 (2012: £570m/255p).