Next profits fall but boss says Brexit not affecting spending

The chief executive of Next has said trading had not been affected by Brexit as consumers were “numb” to a political soap opera that had not hurt their own finances yet.

The comments by Simon Wolfson, a Conservative peer and prominent Vote Leave supporter, came as Next reported a third year of falling profits on the back of a marked deterioration in the financial performance of its high street chain.

“Our feeling is that there is a level of fatigue around the subject that leaves consumers numb to the daily swings in the political debate,” saidWolfson, who has been running Next for 18 years. “It appears to us that consumer behaviour will only be materially changed if the UK’s departure from the EU begins to affect employment, prices or earnings.”

The group made a pretax profit of £722.9m in the year to 26 January, down slightly from £726.1m the previous year.

However, the fortunes of its main divisions diverged: profits at the retail chain slumped by a fifth to £212.3m, while its online operation forged ahead, with profits up nearly 14% to £352.6m.

Next said the provisional import taxes outlined by the government last week would reduce its tariff bill by about £12m to £15m, a saving it would pass on to shoppers.

Wolfson said this was because proposed reductions in tariffs on goods from non-EU countries would more than offset increases in tariffs on imports from the EU and Turkey.

Last year Next’s biggest worry in the event of a no-deal Brexit was disruption at the ports but Wolfson said HM Revenue & Customs’ decision to adopt a flexible approach to customs checks meant he was no longer concerned about deliveries being held up behind shipments with inadequate paperwork.

“We have planned for it [no-deal] and are ready for it,” continued Wolfson. “We can’t plan for what the effect on consumers will be, because we don’t know.”

Overall group sales increased 2.5% to £4.2bn despite the fact that sales at Next stores open for more than one year declined by 8.5%.

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The chain shed almost £170m of turnover, declining to £1.95bn in sales. Sales at its home shopping arm were up nearly 15% at £1.9bn. Wolfson expected profits to fall again this year to about £715m.

Against a backdrop of major rivals shutting stores, Wolfson insisted its chain of 507 stores was not bloated.

“The issue with stores is not the space, it’s the cost,” he said, adding that the rent bill for the 28 leases renewed in 2018 declined by 29%, improving store economics. “Rents are adjusting to the retail reality.”

Kate Ormrod, retail analyst at research firm GlobalData, said Next was “being propped up by its impressive online division”.

“There is significant opportunity to mop up sales from the likes of M&S and Debenhams, but there remains room for improvement in terms of design and fashionability in order to drive appeal among the under-40s, ensuring these customers are buying for themselves, not just their kids.”