Next's Wolfson Sees Easier Days Ahead After U.K. Retail Woes

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(Bloomberg) -- Apparel chain Next Plc says the worst is over after a year in which U.K. retail casualties piled up amid shrinking consumer spending power.

The U.K.’s second-largest clothing chain said full-price sales growth will accelerate this year as it sells more goods online and inflationary pressure eases. While profit last year declined, the more benign outlook for the coming months lifted Next’s shares as much as 7.2 percent.

Next’s results reflected rare stability in a U.K. retail sector that’s in tumult. A slowdown in consumer spending resulted in weak sales updates from home-improvement company Kingfisher Plc, fashion retailer Ted Baker Plc and suit seller Moss Bros Group Plc this week. Amid a surge in sourcing and labor costs, as well as the relentless rise of Amazon.com Inc., Toys “R” Us Inc.’s U.K. arm and electronics retailer Maplin both collapsed in February. Already-tough conditions were worsened by snowstorms that kept shoppers at home.

Next said pressure on sourcing costs is easing as the effects of a weak pound work their way through the supply chain. U.K. wages are rising at the fastest pace since the end of 2016 after a period in which raises trailed well behind inflation, the Office for National Statistics said earlier this week.

“If our own experience of what’s happened to our input prices is reflective of the wider economy, then we should see at some point real incomes beginning to grow,” Chief Executive Officer Simon Wolfson said by phone.

The company now expects full-price sales growth of 1 percent in the current fiscal year, ending in January, up from 0.7 percent a year earlier. Still, Next expects retail margins to fall, mainly as a result of lower like-for-like sales.

While retail full-price sales fell 7 percent in the latest year, online full-price sales rose 11 percent. The CEO said earnings per share “will modestly move forward.”

Next, which trails only Marks & Spencer Group Plc in U.K. clothing sales, is in talks to acquire two retail spaces from Toys “R” Us, Wolfson said.

©2018 Bloomberg L.P.

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