Comment: Next makes money in the middle market

Next was very much in fashion with shoppers over Christmas, when it posted better than expected sales.

Crucially, it wasn’t just revenues that rose. By holding firm to its strict Sales calendar, Next protected profits too while the margins of others that discounted - such as Debenhams - took a pounding.

Next’s full-year earnings are now likely to be about the same as Marks & Spencer’s after guidance was increased to between £684m and £700m.

After the Christmas melee, how many retailers can come out with a comment, as Next was able to, like this? “We are now faced with a question as to what to do with the accumulated surplus cash (we already generate more cash than can be invested productively in the ongoing development of the business).”

The answer to the question is that Next will pay a special dividend and there is the prospect of further such payouts or share buybacks to come.

Next has long pleased investors, and that is testament to the canny leadership of boss Lord Wolfson and his team. The retailer is efficiently run, has adapted its established Directory business to take advantage of online opportunities and has maintained its focus on product.

Last Christmas looks likely to have been another of polarised performance in retail, giving rise to talk about a ‘squeezed middle’ as companies at the ends of the spectrum, such as Waitrose and Aldi, grow.

But Next is nothing if not middle market. Its success is evidence that strategy, execution and quality of management, not just market position, make the difference.

Float hopes rest on Christmas

It’s not just investors that will pore over the January trading statements. A raft of retailers ranging from House of Fraser to Poundland are considering IPOs. How the sector and its constituents do will affect valuations - and whether some of the floats get away at all.