British fashion retailer Next raised profit forecasts after better-than-expected Christmas sales, but warned earnings could be flat in 2010 as taxes are likely to have to rise to cut government debt.
Next, which runs over 500 shops in the UK and Ireland as well as a home shopping business, said today cold weather and strong demand for homewares had boosted sales in the run up to Christmas.
Helped also by tight cost and stock control, the firm said pretax profit would rise to £490-500 million (€545-557 million) for the year to January 31st, up from £429 million the year before and above analysts' consensus forecast of £472 million.
However, Next remained cautious about prospects for 2010, saying it was planning for "similar" profits, although it also said it could buy in more stock if sales proved stronger.
"The scale of the public sector deficit poses a real threat to recovery," the firm said, warning government attempts to reduce this by, for example, lifting taxes and cutting public sector jobs, could curb consumer spending.
Next's mix of strong trading and caution on the future chimes with comments from British department stores group John Lewis, which earlier today reported a 15.8 per cent rise in sales in the five weeks to January 2nd.
Marks & Spencer, Britain's biggest clothing seller, publishes its Christmas figures tomorrow.
Singer analyst Matthew McEachran noted Next's track record of caution on future profit growth - the group has upgraded forecasts repeatedly throughout the current financial year.
He kept his forecast for 2010-11 profits to grow to £509 million, as well as a "buy" rating on Next shares.
Next said sales at stores open over a year increased 1.6 per cent in the 22 weeks to December 24th, above its second-half guidance of flat to down 3 per cent.
Sales at its Next Directory home shopping business rose 6.8 per cent, ahead of guidance of up 4-6 per cent.
The group said it expected underlying sales at its shops to be within a range of down 3 per cent to up 1 per cent in the next fiscal year, with Directory sales between flat and up 2 per cent.
Next have increased by 93 per cent over the last year, beating the UK general retail index by 14 per cent.
They closed at 2,139 pence yesterday, valuing the firm at £4.2 billion.
Reuters