| | 2011 presented the retail sector with the perfect economic storm. Consumer demand was anaemic, held back by a combination of high inflation, low growth in wages and limited growth in consumer credit. Our own input costs rose as soaring cotton prices and overseas wage inflation were passed on by our manufacturers. This, along with the higher VAT, placed upward pressure on our selling prices. Taken in this context, Next has performed remarkably well.
Retail performed in line with our budgets. VAT exclusive sales were down -1.4%, although the cash taken through the till (including VAT) remained in line with last year. Negative like-for-like sales were offset by sales from new space. Profit margins were maintained with profits down broadly in line with sales at -1.6%.
Retail Sales:
2012 - Total No. Stores: 512 LFL -6.3%
2012 - Underlying No. Stores 432 LFL -5.7%
We increased total trading space by 402,000sq ft in the year, increasing our portfolio by 11 stores to 536 stores. The net increase in stores is entirely as a result of adding 14 new Home standalone stores and although the trading space of clothing increased by around 200,000sq ft the number of trading locations reduced by 3.
In August we opened a new large concept store in Shoreham which has proven extremely successful. The store consists of a Fashion and a Home shop, sitting side-by-side, on one standalone site with its own car park. The Home part of the shop carries an extended range which includes light DIY products and a small garden centre. We have identified 19 other sites around the UK where we would ideally like to open similar stores. However we expect progress to be slow as almost all of these sites require planning permission. We will open at least two more in the year ahead, one near Ipswich, the other near Warrington.
We expect to open around a further 270,000sq ft in the year ahead and that sales from new space will contribute around 4% to retail sales in the year. This projection has reduced since September as a number of complex projects, many of which require planning permission, have slipped into the following year.
Retail profitability remained flat as achieved gross margins moved forward offset by increases in occupancy and overhead costs.
The company’s decision to order stock earlier, and increase stock-holding throughout the year, meant that we were able to reduce the amount of air freight required to transport stock last minute. This increased our bought-in margin by 0.3%. Improved clearance rates in the End of Season Sale and reduced markdowns added a further 0.4% to achieved gross margin, although some of this gain has been offset by increased handling charges.
The Next Directory has had another very good year with sales growing 16.4% and profits up 18.3%.
Directory sales were driven by a combination of growth in UK full price sales, additional End of Season markdown sales, the new "offers" tab and international sales.
Directory stock for the Sale was up 26% on last year, whereas markdown stock across the brand was up only 10.7%. The disproportionate growth in Directory was mainly the result of transferring less surplus stock from Directory to Retail.
The "offers" tab sells prior season stock that has already been written down to one third of cost in exactly the same way as our Clearance stores operate in Retail.
Directory continues to make good progress overseas with annual sales reaching £33m last year against only £10m the previous year. We now trade online in 48 countries overseas with sales being particularly strong in Germany, USA, Australia, Eire, Poland and Russia (the last of which only commenced trading in September last year). We are budgeting for international online sales of £50m in the year ahead, at a profitability of circa 20%.
We now trade in most of the major consumer markets, but there is still the opportunity to open in a further 15 new markets during 2012, the most important of which are likely to be Middle Eastern countries in which we already have successful franchises. We anticipate a Chinese language site will be operational in mainland China during the year, though this has proven harder to get up and running than initially anticipated.
Over the course of 2011, margins in Next Directory have improved by +0.4%.
The achieved gross margin increased by 0.8%.
The majority of the international business is conducted through our franchise partners. In total, they operate 164 Next stores in 30 countries. Reported partner sales increased by 9% in total and 5% on a like-for-like basis.
The outlook for the year ahead is very uncertain, and in this environment we think it is sensible to again be cautious in our budgeting. |