Next hikes profit in 'testing' conditions

15th Sep 2010 07:07

Next did pretty much as expected in the six months to July given that the clothes retailer's last update was only a month ago, but the high street remains a "testing" place and higher cotton prices could crimp demand.Profit before tax increased 15% to £213.3m from £185.5m a year ago on revenue up 5% to £1.59bn. Like for like sales fell 1.5%, as previously flagged, just below the midpoint of guidance.Forecasts are unchanged from August's update when estimates for full-year profit were put at between £535m and £560m, representing growth of 6-11%.But shoppers may find their fashion costs more in the spring. Cotton prices are up 45% on last year and VAT goes up soon, which Next reckons will force stores to raise prices by 5-8%. It thinks the price rises are likely to moderate demand "to some extent", but believes the effect is "unlikely to be dramatic". Broker Charles Stanley called the outcome "creditable" and expects Next to make "steady progress"."In light of our expectation that the group will deliver at least high single-digit growth in underlying earnings and dividends in each of the next three years, we consider the valuation attractive. Our recommendation stays at Accumulate," it says.The half-year dividend rises 6p to 25p. Next confirms that the full-year payout will be at least 10% above last year's 66p.