Billion, schmillion? Why Next’s Lord Wolfson is looking beyond landmark profit

A billion is ‘nice’ but nothing more

Some retailers would crow from the rooftops if they managed to notch up earnings of £1bn – it’s a figure only ever achieved by a select few. However, Lord Wolfson refused to attach what he sees as undue importance to the number.

He maintained: “It’s nice, but in itself it doesn’t change the business.”

He said: “Next’s financial objective has never been a given amount of profit, our focus has always been the delivery of sustainable growth in earnings per share.” In the last 30 years, EPS has risen 29-fold.

He pointed out that the median Next shareholder – which includes 12,300 staff – has 150 shares, an investment worth around £15,000 paying a modest dividend – versus the overall eye-catching headline of £350 a year.

Wolfson observed: “There is, perhaps, a message here for those who might believe that ‘big business’ is a collection of a few very rich people with ‘broad shoulders’ – shoulders that can afford to take on the burden of paying for excessive regulation and government financing.

“Corporations are in fact vast networks of collaboration—networks that connect hundreds of thousands of customers, employees and savers, few of whom individually have broad shoulders.

“We are not saying that businesses should not pay tax – they absolutely should. But policymakers should not allow themselves to believe that burdening ‘big’ business does not impact the lives of millions of ‘ordinary’ people. It does – consumers through higher prices, workers through fewer jobs, and savers through lower pension income.”

Net physical space being added for first time in years

Although sales were slightly down and operating profit lower at Next’s retail arm – i.e, its bricks-and-mortar stores – the retailer still sees room for space to inch up.

In the current year, Next will open 10 new branches and relocate six, meaning that for the first time in half a decade, trading space will increase.

The change will only amount to 0.4% and online is very much the motor of the business, but Wolfson said: “The important thing is it shows confidence and we think the worst of the structural shift [to online] is over.”

Openings will include a new-look store in Thurrock which will debut towards the end of the year – the first new Next shopfit for some time. Wolfson said that although shops may not be the most important contributor, they still make money – £237m operating profit last year – and there are places where Next has no physical presence.

Where Next is generating growth

Wholly-owned brands and licenses (WOBL) and sales through aggregators are rising rapidly internationally, alongside continued growth from the core Next brand. Overseas sales now account for 18% of Next’s business.

Wolfson noted: “The growth of our international business outstripped our expectations last year.”

To drive that further there will changes to Next’s fulfilment as it merges orders to its own sites with those through partner Zalando, allowing fulfilment from one combined stock holding.

Next’s £930m online sales total last year includes all brands – its own, WOBL and third-party – but the Next brand accounts for 80%. This year Next anticipates online international full price sales to increase by 18%.

As well as the convergence of global fashion trends, Next is benefiting from enhanced website functionality and delivery, better marketing and third-party relationships.

Wolfson said that the introduction of new tariffs in the US following the election of president Trump, and the removal of de minimis rules in the EU as well as the US, should have “relatively little impact on the overall group’s sales or profits” because of factors such as the small scale of the American business and sales through an EU-domiciled subsidiary.

Changed business structure and confidence in prospects

Wolfson pointed out that Next’s operations have changed significantly in the last few years as it benefits from two “increasingly distinct but complementary businesses” – its prowess in product and its platform strength, as its own appeal as an aggregator for other brands grows.

Wolfson said “the product side is beginning to break free from the constraints of the platform”, as Next brand sales through partner sites internationally grow” and “equally, our infrastructure and online business is extending its imits beyond the Next brand, but they’re both very much joined at the hip”.

Confident in prospects

While Wolfson said that it would be “foolish” to be cocky about passing the billion pound profit mark, the retailer’s guidance for the current year was upbeat.

Next lifted sales guidance for the current year to up to 5% from 3.5% – and group pre-tax profit up 5.4% to £1.07bn.

While he asked “what’s in a number?” about the £1bn just reported, it looks as if that figure should be maintained as Next seeks to make the most of opportunities it sees.