NEXT will raise the pressure on Marks & Spencer this autumn with a further 4 per cent cut in prices, after the clothing and home furnishings retailer revealed a 30 per cent lift in group profits.
The latest cuts follow a 6 per cent drop in the average selling price of Next clothing in spring, which helped the group to grab market share from its bigger rival.
M&S is also under pressure from a massive investment boost at Bhs, the chain owned by Philip Green, the entrepreneur whose attempt to buy M&S earlier this year failed.
Simon Wolfson, chief executive of Next, said the retailer was funding price cuts through cost efficiencies. He was adamant that margins would not be affected, but gave warning that the retail market would become much more competitive in the next 12 months.
Mr Wolfson said several clothing retailers had been distracted by corporate activity this year, while high levels of employment had helped to sustain steady growth in consumer spending. However, he suggested Next might double its market share to 12 per cent in the next six to ten years, which would make the retailer bigger than M&S.
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The company plans to open 500,000 sq ft of new store space by the end of the financial year, raising its total retail space by 20 per cent. An additional 500,000 sq ft is in the pipeline for next year.
Next shares rose 3.5 per cent, or 53p, to £15.70. The retailer shrugged off talk of a difficult summer for clothing stores with a 2.6 per cent rise in underlying sales in the six months to July 31, and a healthy 2.1 per cent increase in the six weeks from August 1.
Strong sales of lingerie and homewares, as well as new store openings raised total sales by 16 per cent at Next’s retail chain, and by 13 per cent at the Directory, its home shopping catalogue and internet site. The sales figures contributed to a 15 per cent rise in total turnover for the group in the first half to £1.29 billion. Pre-tax profits rose 30 per cent to £162.7 million.
Analysts said Next had outperformed expectations. Several analysts increased their profit forecasts for the year to about £425 million, from about £400 million.
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INCENTIVE SCHEME REVAMP
Next is planning to overhaul its controversial directors’ incentive scheme next year after pressure from a leading shareholder group. The scheme, introduced earlier this year, involves senior executives, including Simon Wolfson, chief executive, and David Keens, finance director, investing £1.48 million between them in a bet on the Next share price in 2008. The company also rewarded staff who invested in the scheme by putting up a total of £1.96 million.
Mr Wolfson said the scheme would run again next year and that Next’s shareholders supported it but that a number of changes would be introduced and announced to shareholders before next year’s annual meeting.